Despite higher revenue and lower expenses, fourth-quarter net profit for rail lessor and manufacturer GATX (NYSE: GATX) was down from a year ago on lower affiliate income related to a joint venture with Rolls-Royce. The fourth quarter of 2019 also included income from operations that have since been discontinued.
Fourth-quarter 2020 net income was $17.8 million, or 50 cents per diluted share from consolidated operations, compared with $56.6 million, or $1.59 per diluted share from consolidated operations, for the fourth quarter of 2019.
The financial results from the fourth quarter of 2019 include earnings from American Steamship Co., which GATX sold in the second quarter of 2020. Excluding that, fourth-quarter 2019 net income would be $42.1 million, or $1.18 per diluted share.
Fourth-quarter revenue was $304.9 million, compared with $300.5 million in the fourth quarter of 2019. Expenses were $231.3 million, compared with $239 million year-over-year.
“Despite difficult market conditions at Rail North America, outstanding efforts by our commercial team enabled us to maintain fleet utilization above 98% throughout the year,” said GATX President and CEO Brian Kenney in a release.
GATX’s Rail North America segment saw fourth-quarter profit of $49.5 million, compared with $61.1 million in the prior year. The revenue difference between the two quarters was due to lower gains on asset dispositions, according to the company.
Fourth-quarter fleet utilization, excluding boxcars, was at 98.1%, compared with 98.2% for the third quarter of 2020 and 99.3% for the fourth quarter of 2019. Meanwhile, GATX’s owned fleet in North America was approximately 118,100 cars, including more than 14,300 boxcars.
“Persistent industry-wide railcar overcapacity combined with the economic impacts of COVID-19 put significant pressure on lease rates,” Kenney said. “However, absolute lease rates for most car types stabilized or modestly improved in the second half of the year. Notably, our maintenance cost performance was better than our original expectations coming into 2020, as the efficiencies gained from aggressively moving work from third-party shops into our owned maintenance facilities more than offset COVID-19 related expenses necessary to ensure workplace safety.”
Meanwhile, GATX’s Rail International segment saw fourth-quarter profit of $25.6 million, compared with $22.9 million in the prior year on more railcars being leased.
“Despite the pandemic, demand for railcars remained stable in Europe and India. Rail International maintained high fleet utilization, experienced increases in renewal lease rates, and grew and further diversified its railcar fleets. Nevertheless, COVID-19 adversely affected the pace of new railcar investments in both Europe and India,” Kenney said.
GATX also has a joint venture with Rolls-Royce, which experienced a decline in financial results in 2020 because of the “significant reduction in global passenger air travel resulting from the pandemic,” the company said. Indeed, that segment, which includes the joint venture, reported a net loss of $5.7 million in the fourth quarter, compared with a profit of $27.5 million in the fourth quarter of 2019.
The company said its 2020 investment volume was over $1 billion, which included the acquisition of Trifleet, the world’s fourth-largest tank container leasing business.
GATX also invested approximately $120 million in January 2021 to acquire Rolls-Royce aircraft space engines that are on long-term leases to airline customers.
Railcar leasing could continue to be under pressure in 2021 because the railcar market remains oversupplied, Kenney said. Uncertainties surrounding the COVID-19 pandemic add to the difficulty in forecasting the market, he said.
Nonetheless, GATX is pinning 2021 earnings to be in the range of $4 to $4.20 per diluted share. For 2020, annual earnings per share for consolidated operations was $4.27.
“The difficulty in predicting the timing of the COVID-19 pandemic’s easing and an economic recovery creates substantial uncertainty in our earnings estimates. While we see some initial signs of recovery in North America railcar leasing, absent an unforeseen demand catalyst, fleet utilization and lease rates are expected to remain under pressure from an ongoing market oversupply of railcars,” Kenney said.
He continued, “However, we expect lower lease revenue to be offset by higher asset disposition gains and cost control, leading to essentially flat segment profit at Rail North America in 2021. Rail International is expected to produce higher profitability in 2021 due to continued strong demand for new and existing railcars in Europe and India.”