FreightCar America sees opportunity in continued high scrapping levels in 2022

Continued elevated levels for scrapping railcars are likely to persist in 2022, which should benefit railcar manufacturer FreightCar America this year, company executives said during the company’s fourth-quarter 2021 earnings call.

“Since 2020, railcar annual scrapping figures have outpaced deliveries and historical replacement demand as customers retire older and less efficient railcar assets,” Matthew Tonn, FreightCar America (NASDAQ: RAIL) chief commercial officer, told investors on Tuesday. “With scrap rates that remained historically high, we expect this trend to continue into 2022.”

The North American railcar fleet is also improving, “with some customers reporting near 100% of fleets in use or under lease,” Tonn said.

Railcar orders in the fourth quarter of 2021 totaled 1,032, with inquiries coming in for many types of railcars.

“We’re seeing activity on all fronts, but we’re also seeing demand that’s spreading into the out years on a more longer-term basis,” Tonn said. “I can show you that we are booking orders into next year, and we anticipate that to continue.”

The company reiterated previously announced plans to complete the construction of additional production lines in 2022, which would double annual capacity to between 4,000 and 5,000 railcars by early 2023. FreightCar America also expects to complete the construction of a 162,000-square-foot fabrication shop and expansion of the wheel and axle shop by mid-2022.

FreightCar America raised its 2022 delivery outlook from between 2,350 and 2,650 railcars to between 2,600 and 2,900.

Deliveries for 2021 totaled 1,731 railcars, with 604 delivered in the fourth quarter and 505 delivered in the third quarter.

The company has a fourth-quarter backlog totaling 2,323 railcars, worth about $240 million.

The full year-over-year improvement for railcar deliveries was a direct result of an improved cost structure, operating capabilities at the Castaños factory and an “overall ability to compete,” said FreightCar America President and CEO Jim Meyer.

FreightCar America has closed its manufacturing operations in the U.S. in recent years, consolidating operations and moving them to Mexico.

“The transition of manufacturing footprint to Castaños translated to approximately $20 million in annual fixed cost savings and 2021 versus the prior U.S. base footprint, and we expect annual fixed cost savings versus the prior U.S. base footprint to remain above $17 million going forward,” Meyer said.

FreightCar America’s fourth-quarter 2021 net income was nearly $1.17 million, or 6 cents per diluted share, compared with a net loss of $14.4 million, or a loss of 87 cents per diluted share, in the fourth quarter of 2020.

Fourth-quarter 2021 revenue was $75 million, up nearly 24% year-over-year.

Operating income was $63,000 in the fourth quarter of 2021 amid stronger manufacturing operating income, compared with a loss of $9.2 million in the fourth quarter of 2020.

The company manufactures all of its railcars in Castaños, and higher railcar volumes have allowed FreightCar America to leverage the operations of the business, directly impacting manufacturing operating income, executives said.

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