Release Date: April 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Greenbrier Companies Inc (GBX, Financial) delivered strong performance with operating efficiencies continuing to improve.
- Generated over $860 million in revenue and earnings per share of $1.3 with a consolidated gross margin of 14%.
- Received a balanced mix of orders across geographies, with market conditions for railcar leasing remaining positive.
- Balance sheet remains healthy, allowing investment in the business while returning capital to shareholders through dividends.
- Successfully launched innovative products like the ultra high strength gondola and a new 89 foot slab chilled flat car.
Negative Points
- Lower Wilson volumes in maintenance services due to a milder winter, impacting performance.
- The European economy is still lagging behind the US, with growth projections trimmed by the European Central Bank.
- Border crossing issues impacted deliveries from suppliers or to customers during the quarter.
- Maintenance services performance was impacted by lower volumes, resulting from an unusually mild winter.
- The second quarter gross margins of 10.8% declined slightly from the first quarter.
Q & A Highlights
Q: Can you provide any additional color on how orders progressed through the quarter month-to-month?
A: (Brian Comstock - EVP & President, The Americas) Orders increased as the quarter progressed, particularly in North America. The third quarter has started strong as well, with a solid pipeline and robust visibility.
Q: On the ASP decline by 16% Q2 versus 1Q, is that a function of the international portion being higher this quarter than last quarter or is there anything else in there?
A: (Brian Comstock - EVP & President, The Americas) It's a mix of different factors, including the mix of international orders which has some impact on the average ASP. However, pricing in the industry remains disciplined.
Q: Is there a broad cyclical adjustment or specific customers pulling back that's affecting the maintenance business? When would you expect stabilization?
A: (Justin Roberts - VP, Corporate Finance & Treasurer) The maintenance business typically sees seasonality and cyclicality. The milder winter didn't drive the usual volumes, but this isn't seen as a major cyclical shift. Remedial actions are being taken to manage volumes and costs proactively.
Q: What is the ultimate margin range you'd expect to generate in manufacturing with a mid-cycle backdrop?
A: (Lorie Tekorius - CEO, President) With stability and visibility like the present, margins are expected to be at the upper end of the range provided. The company is working on improving throughput to enhance margins.
Q: Are you expecting manufacturing margins to stay at double digits for the second half? And what about maintenance margins?
A: (Lorie Tekorius - CEO, President) The company expects mid-teens margins on a consolidated basis and does not anticipate manufacturing margins going backwards or dropping into single digits.
Q: With the fleet levered to 77% of book value, do you expect incremental debt from here to primarily just fund additions to the lease fleet at that ratio plus or minus?
A: (Lorie Tekorius - CEO, President) Yes, the company is disciplined about what is put on the balance sheet and aims to leverage it appropriately, locking in interest rates and considering market conditions.
Q: What is the average term for recent lease renewals?
A: (Brian Comstock - EVP & President, The Americas) Most renewals are coming in at five to seven years on average, which is substantially longer than the fleet average term of 4.2 years.
Q: Do you anticipate putting out a lease renewal index similar to the LPI or the FLRD?
A: (Lorie Tekorius - CEO, President) The company has discussed this and is considering it, but nothing is unveiled as of now.
Q: Is lease fleet leverage the primary metric you're focused on going forward? Or is there a net debt to EBITDA target for the Company?
A: (Lorie Tekorius - CEO, President) The company is focused on lease fleet leverage and aims to pay down corporate recourse debt over time with the cash flow generated from the leasing business and other margins.
Q: Is the ASP decline just a mix issue in terms of what you're selling versus anything going on the industry?
A: (Justin Roberts - VP, Corporate Finance & Treasurer) It's a mix issue and the ability to escalate and deescalate raw input costs on the backlog. Core pricing that drives profitability is stable to up across various car types.
Q: Do you expect the back half of the year to be stronger from an operating cash flow perspective?
A: (Justin Roberts - VP, Corporate Finance & Treasurer) Yes, the company expects the back half of the year to generate stronger operating cash flow and free cash flow.
