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Greenbrier: Customers support rail despite economic, political headwinds

Greenbrier’s customers more focused on getting products to markets, less on recession fears, executives say

Greenbrier reported its quarterly results Monday. (Photo: Greenbrier)

Despite a backdrop of macroeconomic and global political uncertainties, most shippers and railroads right now are focusing more on easing rail congestion, executives with railcar manufacturer Greenbrier said during the company’s third-fiscal-quarter earnings call on Monday.

“I think everybody’s got an eye on the finish line. And everybody’s being smart about what they do. Our customers, you know, aren’t necessarily focused on recession as much as they’re focused on trying to get the product to markets,” said Brian Comstock, chief commercial and leasing officer, on Monday’s call. “The truck market is pretty congested. They’re having issues. The rail velocity is congested. And so there’s still a lot of supply chain constrictions. That’s really what people are focused on, is how do we get our product to market? And how do we grow share on rail?”

When U.S. rail congestion eases, that could ultimately benefit railcar manufacturers and lessors because the focus of Greenbrier’s customers and others will be putting commodities onto rail because of rail’s lower carbon footprint and relative efficiency, said Greenbrier President and CEO Lorie Tekorius.

“I would say our feeling on the state of the market is cautiously optimistic … . When you get deeper beyond just the headlines, we see demand by a number of shippers to add equipment to the rails to be able to ship more products via the rails,” Tekorius said.

She also said that lease utilization has stayed steady at 98%: “I think that is just another indicator that the market is using all the equipment that they can that’s out there, and once there’s a bit better fluidity on the rails, you’re likely going to see more equipment being brought in.” Aging equipment and the need to move into more efficient and newer rail equipment with improved technology may also be another market positive for Greenbrier (NYSE: GBX), she said.

Tekorius noted during Greenbrier’s earnings call that railcar production increased in Greenbrier’s core North American market in the quarter, resulting in a workforce expansion of over 1,500 people. In contrast, production slowed in Europe amid the war in Ukraine and triggered a pause in order activity, although customers are starting to secure orders again, executives said.

“We believe the current challenges in the North American rail system, like network congestion, present opportunities for our business in the months ahead,” Tekorius said. “Strong customer inquiries and shipper outlook are encouraging indicators of future order activity and leasing performance. Our backlog is diversified amongst a variety of railcar types and extends well into calendar 2023.”

3rd-quarter results

Net profits for Greenbrier in the third fiscal quarter of 2022 were $3.1 million, or 9 cents per diluted share, compared with $12.8 million, or 38 cents per diluted share, in the same quarter of 2021. Greenbrier’s third fiscal quarter ended May 31.

The company attributed the year-over-year earnings decline to the timing of fleet sales. 

Despite the profit decline, Greenbrier’s revenue rose 16% to $793.5 million on higher deliveries and through passing along input cost escalations in Greenbrier’s manufacturing segment. The company also saw volumes increase in its maintenance services segment. Gross margin rose 39% to $76.3 million amid an increase in deliveries and improved operating efficiencies in its manufacturing and maintenance services segments, despite the impacts of the war in Ukraine serving as a headwind.

Revenue costs rose from $375 million to $717.2 million amid a 109% increase in manufacturing costs. 

Greenbrier noted that its new railcar backlog of 30,900 units is valued at $3.6 billion, which is the highest value in six years, while lease fleet utilization was 98%.

In the third quarter, new railcar orders totaled 5,000 units, valued at $670 million, with orders originating primarily from North America as Europe navigates the continued impact of the war in Ukraine, Greenbrier said. The company also delivered 5,200 units in the quarter. 

Greenbrier has a railcar refurbishment backlog of 3,100 units, valued at over $220 million. 

“In Europe, the war triggered a pause in order activity after securing orders for 2,300 railcars in the first two quarters of our fiscal year. In recent weeks, European buyers are returning to the market and our sales pipeline is active. Lease syndications and Maintenance Services helped to balance our quarterly results, underscoring the value of Greenbrier’s diverse business activities,” Tekorius said in a release. “Uncertainty in the U.S. economy remains an ongoing challenge, but our operations continue to build momentum.  When confronted with difficult externalities, Greenbrier has a proven ability to produce value through our integrated platform.”

Furman bids farewell

Monday’s earnings call was also the last that Bill Furman, executive chair, co-founder, and former president and CEO, participated in. Furman announced his departure last fall. 

Furman will retain responsibility for certain line functions until Aug. 31, the end of Greenbrier’s fiscal year. His board appointment will continue through January 2024.

“I feel privileged to have enjoyed a lengthy tenure at Greenbrier. Extended careers leading publicly traded companies today are exceedingly rare,” Furman said. “I thank our board of directors and our shareholders for their confidence in me throughout.”

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.