Company earnings

Updated: Greenbrier misses expectations and guidance much worse

Railcar manufacturer The Greenbrier Companies (NYSE: GBX) reported fiscal third quarter 2019 adjusted earnings of $0.89 per share, $0.07 per share light of the NASDAQ consensus estimate of $0.96. The company’s adjusted earnings excluded non-recurring expenses for a goodwill impairment charge in its repair division and acquisition costs related to its pending deal with American Railcar Industries (ARI).

New guidance

GBX provided fiscal fourth quarter guidance of 7,000 to 8,000 deliveries, revenue of $1 billion and adjusted earnings per share of $1.30 to $1.50. This compares negatively to the current NASDAQ consensus estimate of $1.90 per share for the company’s fiscal fourth quarter 2019.

Management previously provided full-year adjusted earnings guidance of $3.60 to $3.80 per share during its last earnings report. The midpoint of its new fiscal fourth quarter guide suggests full-year earnings of $3.05, much lower than the current consensus estimate of $3.62.

Takeaways from the earnings call

GBX provided some color regarding earnings on its earnings call with analysts and the media. Chairman and Chief Executive Officer William A. Furman acknowledged the company produced “mixed results” in the period, but believes that many of its recent “headwinds will turn into tailwinds” beginning in the company’s fiscal fourth quarter 2019. He believes that margins were negatively impacted by approximately $10 million and will “stair-step higher sequentially” as it realigns its railcar repair network and continues to “right-size” its production network in Brazil.

Commenting on the guidance, Furman said that he believes the company would be “hard-pressed” to produce earnings less than $3.20 per share in fiscal 2020 which begins in September. Roughly 60 percent of the current backlog is slated for fiscal 2020 production and the company still has one quarter left in its fiscal 2019 to accumulate additional railcar orders.

GBX’s current fiscal 2020 earnings estimate sits at $3.93 per share according to NASDAQ.

Management believes that recent reductions in 2019 railcar delivery estimates (FTR Research lowered its 2019 delivery forecast by 11,000 cars to 51,400 units and provided a similar 2020 forecast calling for 51,100 deliveries) are likely overdone and represent increased macroeconomic uncertainty. GBX believes that new railcar orders will be stable sequentially moving forward even as rail shipments are declining. Overall order activity was described as “robust” with strong demand being seen across many car types with the petrochemical industry (tank cars) leading the way.

Total Carloads – Class I U.S. Railroads – SONAR

The Lake Oswego, Oregon-based company said it received 6,500 new orders for railcars in the quarter valued at $730 million. This increased the company’s total railcar backlog to 26,100 units, up 100 units, with a total value of $2.74 billion. GBX delivered 6,500 railcars in the quarter, 900 units higher year-over-year.

“Greenbrier gained the momentum we expected during the quarter, led by improved operating efficiencies in our core North American manufacturing business.  Greenbrier’s current and expected performance is consistent with our prior comments that revenue and margin would be back-half weighted this fiscal year. These gains were muted in our overall financial results due to continued weakness in Greenbrier’s railcar repair business and certain international operations, along with costs associated with the ARI acquisition,” said Furman.

GBX reported a year-over-year revenue increase of 34 percent to $856.2 million in the quarter, with similar revenue gains seen across all three of the company’s divisions. The company reported a 12.4 percent gross margin, which was 450 basis points lower year-over-year.  

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $2.5 million lower year-over-year at $84.4 million in the period. The restructuring of its railcar repair network and headwinds in renewing its rail concession in Brazil, which are weighing on the operations of its joint venture there, were called out as the reasons for the decline in earnings.

“Greenbrier’s Brazil operations are being right-sized for the current demand environment before order activity ramps up as expected in 2020 and over the coming years. Meanwhile, pricing and manufacturing performance in Europe responded more slowly than expected, but is now kicking in. Headwinds from Europe and Brazil are expected to turn to tailwinds in the fourth quarter and beyond, along with other international performance contributions,” said Furman.

In April 2019, GBX announced a $400 million deal to buy the manufacturing unit of its competitor, American Railcar Industries.

Shares of GBX are 7 percent lower, but were off nearly 12 percent in early trading.

GBX Stock Chart – Seeking Alpha

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

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