GATX’s (NYSE: GATX) first quarter profit fell 46 percent to $41.5 million, or $1.12 per diluted share, from $76.3 million, or $1.98 per diluted share, in the first quarter of 2018. First quarter revenue totaled $317 million, up 3.8 percent from $305.3 million in the first quarter of last year. Operating expenses were up 1.4 percent to $241 million.
Chicago-based GATX is a railcar lessor, providing railcars, tank cars and boxcars to freight railroads and shippers.
Lower remarketing for its North American rail segment contributed to the drop in first quarter net income. Remarketing income was $9 million in the first quarter of 2019 compared with $50 million for the same quarter a year ago.
Despite a lower first quarter profit, GATX’s rail assets were nearly fully deployed. North American fleet utilization was 99.4 percent, unchanged from 99.4 percent in the fourth quarter of 2018 but higher than the rate of 98.2 percent in the first quarter of 2018. Utilization of GATX’s boxcar fleet was 95.2 percent in the first quarter of 2019, compared with 94.2 percent in the fourth quarter of 2018 and 93.5 percent in the first quarter of 2018.
At the end of March, GATX’s North American segment owned about 121,000 railcars, including 16,000 boxcars. The company has about 15,000 railcars that are up for renewal this year, split evenly between tank cars and freight cars.
As the company looks at the remainder of the year, GATX expects North American fleet utilization to remain in the high 90s-percent range even if railcar loadings are flat to lower for the year.
GATX took into account the possibility of flat-to-lower railcar loadings in 2019 when it made a fleet utilization estimate earlier this year, according to GATX president and chief executive Brian Kenney.
“We came into the year expecting fairly stable carload activity; the key is having a fleet that’s diversified and not exposed to one particular car type,” Kenney said to investors during GATX’s first quarter earnings call on April 24.
The company is seeing some backlog for new tank cars, which GATX says will enable them to have some rate pricing leverage when renewals come up, officials said. GATX plans to deliver new state-of-the-art tank cars, known as DOT-117s, across several commodities and customers. GATX has about 2,400 DOT-117s in its fleet.
But the company is also retrofitting another type of tank car, the CPC-1232 jacketed car, because the retrofit is relatively inexpensive, according to GATX chief financial officer Tom Ellman. Retrofitting non-jacketed CPC-1232 cars is more expensive and so those retrofits will depend on the customers’ needs and circumstances, Ellman said.
Descriptions of these tank cars, which are used to carry crude oil and ethanol, are available here.
While GATX’s North American rail fleet was the focus of investors’ questions about the first quarter, GATX has other businesses. Its international segment had a fleet utilization rate of 98.9 percent for GATX Rail Europe in the first quarter of this year, compared with 98.8 percent in the fourth quarter of 2018 and 96.7 percent in the first quarter of 2018. GATX Rail Europe has about 23,105 active railcars. GATX’s international arm also operates in Russia and India.
GATX also has affiliations with Rolls-Royce and Partners Finance, and the company said that affiliation is experiencing “robust” demand for aircraft spare engines. Meanwhile, another GATX segment, the American Steamship Company, has 11 vessels scheduled to operate in 2019. These vessels operate on the Great Lakes and transport dry bulk commodities such as iron ore, coal, limestone aggregates and metallurgical limestone.