Like its peers, railcar lessor Trinity Industries expects improving macroeconomic conditions to support the company in 2022. Anticipated higher rail volumes for agricultural products, chemicals and construction materials may support demand for boxcars, gondolas and covered hoppers, Trinity President and CEO Jean Savage told investors during the company’s fourth-quarter 2021 earnings call Thursday.
“Considering both the supportive industry environment and our internal business optimization work, our management team and board firmly believe we enter 2022 poised for meaningful growth,” Savage said in prepared remarks.
Other factors are also supporting the railcar leasing market in 2022. As the inflation rate accelerates for both consumers and producers, Trinity has been able to reprice lease assets to keep up with inflation, Savage said.
Lower train speeds have also helped more railcars come out of storage, with the number of railcars in storage for the U.S. freight railroad falling for 19 straight months from a high of around 500,000 railcars to about 312,000 presently. That drawdown is a reflection of short-term demand for railcars — demand that railcar lessors are also experiencing, according to Eric Marchetto, Trinity’s CFO.
“That demand, which isn’t ideal long term — we’d like the rail system to be much more efficient — but in the near term, that is one of the things that’s making the supply tighter and also allowing lease rates to increase,” Marchetto told investors. “And so I think the railroads, as they figure out some of their own supply chain constraints, we think the demand is there for railcar loads to kind of grow into the growing of the fleet.”
Trinity’s (NYSE: TRN) net income for the fourth quarter of 2021 was $15.8 million, or 16 cents per diluted share, compared with a net loss of $133.8 million, or a loss of $1.19 per diluted share, in the fourth quarter of 2020. The net loss in the fourth quarter of 2020 was due to a noncash pension plan settlement charge and noncash asset write-downs, Trinity said. Removing those factors, the adjusted diluted earnings per share in the fourth quarter of 2020 was a net loss of 2 cents.
Fourth-quarter revenue rose 31% from a year ago to $472.2 million on higher external deliveries for Trinity’s rail products group. Trinity’s revenue from Trinity’s rail products group rose 28% year-over-year to $402.1 million on higher delivery volumes and competitive pricing, the company said.
However, revenue from Trinity’s railcar leasing and management services group slipped 4% year-over-year to $181.2 million in lower average lease rates. But Trinity’s fleet utilization rate rose from 94.5% in the fourth quarter of 2020 to 95.7% in the fourth quarter of 2021.
Meanwhile, expenses in the fourth quarter slipped 9.7% to $42.9 million.
“In the fourth quarter, Rail Products Group margins were positive, and railcar orders and deliveries were strong,” Savage said in a release. “The labor and supply chain challenges that have affected performance continued in the fourth quarter, but the company is seeing improvement as market conditions start to normalize.”
For 2022, Trinity expects industry deliveries of 40,000 to 50,000 railcars and a net investment in the lease fleet of $450 million to $550 million. The company’s manufacturing capital expenditures will be in the range of $35 million and $45 million.
“Market activity is improving, and this trend should continue into 2022. We expect replacement level demand for railcars, and we continue to utilize our sustainable railcar conversion program to optimize our lease fleet and meet changing demand,” Savage said.