After several years of playing defense, Greenbrier anticipates one of its strongest years ever in FY2019, propelled by international growth as well as a strong North American market, executives said during a presentation at the Stephens New York investment conference Tuesday.
“I’m very optimistic about the next few years,” said Justin Roberts, VP of corporate finance. “North America is coming back, but we also see opportunity around the world.”
The Lake Oswego, Ore. railcar maker finished its 2018 fiscal year with 27,000 rail cars in backlog, and during Q4 announced orders for 9,300 railcars valued at over $1 billion.
This is a marked change from just a year or two ago, when Greenbrier, along with other industry players cut costs and struggled with slowing orders, which were hurt by weakness in the broader economy and by low energy prices.
“The thing we take great great encouragement from is [these orders] are across a variety of customers, a variety of rail car types,” Roberts said.
As Greenbrier heads into FY2019, the company has provided guidance of revenue exceeding $3 billion. “That’s a high water mark for us,” Roberts said. “We’ve never hit that number before.”
Roberts pointed to Greenbrier’s freshly inked joint venture with the Saudi Arabia Railway company as an example of the company’s ramped up international strategy. “It’s kind of our next step in our journey in that part of the world.”
Although the financial impact won’t show up until fiscal year 2021, the deal “positions us for longer growth around the world,” Roberts said.
He said more about the company’s global aspirations during the analyst Q&A. “Literally billions of dollars are being invested in other countries to expand their fleets,” he said.
These countries also need other rail services, and Greenbrier’s cradle-to-grave business model is well positioned to meet those needs. “So how can we deploy our integrative model in other jurisdictions? “
The market can support 45,000 to-55,000 cars per year of deliveries, Roberts said. “That’s a really strong space.” What’s driving the jump in orders? “Slower network velocity” as well as underlying economic growth, Roberts said. “Both play a strong role.”
Asked about the mix of rail car types coming down the pike, Roberts said this can be hard to predict, but “as you see plastics and chemicals capacity come on line with lower natural gas prices, companies are encouraging build out of those fleets. These could drive additional growth in the industry build rate.”
There were a few expected questions about tariffs. Roberts said the retrofit market is increasing, but the ongoing trade war will make retrofits challenging for fleet owners. “There a lot of people waiting to see what comes of this,” he said.
Roberts talked about one other big change for Greenbrier in 2019: the recent dissolution of the company’s GBW repair business joint venture with Watco Companies. Under the agreement, the repair shops and employees at each location will return to management by their previous operators.
“We’re doing triage and getting back to basics in that business, [working on] improvement safety and morale,” Roberts said. “We have heavy lifting in that area.”