Favorable market conditions for railcar manufacturing could help FreightCar America return to profitability.
The Chicago-headquartered railcar manufacturer said Tuesday it expects to be profitable on an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis for 2022.
The potential milestone comes after FreightCar America (NASDAQ: RAIL) closed its manufacturing locations in Alabama and Virginia in 2019 and 2020 and moved all its manufacturing operations to Mexico to ensure the company’s survival.
“The heavy lifting part of resizing and retooling our manufacturing footprint is now complete,” said Chief Commercial Officer Matt Tonn on a call with investors.
In a release on Tuesday, President and CEO Jim Meyer said 2022 “will be the first year for which our operations and results will not be obscured by restructuring activities. As such, we believe that our performance this year will provide more clarity on the full potential of FreightCar America.”
The company expects to deliver between 2,350 and 2,650 railcars in 2022, a 44% increase over 2021 at the midpoint. It also booked 1,032 orders in the fourth quarter of 2021, and it has a backlog of 2,323 railcars and “a strong inquiry pipeline that continues to increase,” Tonn said. Those inquiries are for a broad range of car types, he said.
“Demand for new railcars is on the rebound, emerging from the worst railcar demand cycle since the recession of 2009,” Tonn said. High railcar scrapping rates, aging fleets and railroads seeking to expand capacity are “all pointing in the right direction for a strengthening railcar demand cycle.”
FreightCar America plans to break ground on three more production lines at its facility in Castaños, Mexico, with one line ready to produce railcars by the end of this year and another line to be ready for railcar production by early next year. The third line will be on standby for production.
The construction of the additional production lines will result in doubling annual capacity to between 4,000 and 5,000 railcars by early 2023. FreightCar America also plans to have doubled the size of its wheel and axle shop by the end of the first quarter, while its fabrication shop will be online sometime midyear.
But even that expanded capacity will be half of the capacity it had when both of its U.S. facilities were running, according to Meyer. Its former U.S. operations had an annual capacity of around 10,000 railcars, Meyer said.
“We always intended to scale that facility commensurate with how we view ourselves in the marketplace,” Meyer said. The company uses current sales activities to govern planned capacity increases, he said.
Executives said FreightCar America’s relationships with the larger railcar lessors continue to improve, and talks are underway for the possibility of longer-term, multiyear builds.
The additional production capacity will make those conversations with the larger lessors easier, Meyer said.
“One of the things that we bring to the table that I think is a competitive advantage is that we are not a leasing company. We are a pure-play builder. And for many of our leasing companies, they find that to be a refreshing advantage,” Tonn said.
FreightCar America expects to release its fourth-quarter 2021 and full-year 2021 results on March 22.
But the company provided some preliminary results: The fourth quarter of 2021 was the fifth consecutive quarter of positive growth margin, the third consecutive quarter of positive manufacturing operating income and the first quarter of positive adjusted EBITDA at the Castaños facility.
FreightCar also said it reaffirms its ability to achieve positive adjusted EBITDA under normal business conditions at volume levels of 2,000 units per year. Moving manufacturing operations to Mexico helped the company achieve annual fixed-cost savings of approximately $20 million and labor cost savings of more than 60%, on average, compared to the prior U.S.-based footprint.