Q3 2020 Greenbrier Companies Inc Earnings Call
Hello, and thank you all for standing by please continue to stand by the conference will begin momentarily. Please continue to stand by the conference will begin momentarily. Thank you.
Okay.
[music].
Hello, and welcome to the Green Briar Companys third quarter fiscal year 2020 earnings conference call.
Following today's presentation, we will conduct a question and answer session each analyst should limit themselves to only question.
Until that time, all lines will be in listen only mode at the request of the Green Briar companies. This conference call is being recorded for instant replay purposes.
At this time I would like to turn the conference over to Mr. Justin Robert.
President and Treasurer Mr., Robert you may begin.
Thank you Christine good morning, everyone and welcome to our third quarter fiscal 2020 conference call.
On today's call I'm joined by Greenbriers, Chairman and CEO Bill Berman.
Lorie, Tekorius President and CEO.
Oh, and Adrian Downs, Senior Vice President and CFO.
Today, they will provide an update on greenbriers fiscal third quarter as well as our near term priorities during the pandemic and continued economic fallout.
Following our introductory remarks, we will open up the call for questions. In addition to the press release issued this morning.
Additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website.
Matters discussed on todays conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Throughout our discussion today, we will describe some of the important factors that could cause greenbriers <unk> actual results in 2020 and be odd to differ materially from those expressed in any forward looking statements made by or on behalf of green Briar and with that I'll turn it over to bill.
Hey, guys and good morning, everyone.
The every begin this morning.
Yes, Mike continued gratitude to our workforce, then working very hard and succeeding are extremely difficult circumstances.
Our thanks extend to employees and every factory office and many now working at home as well as to our customers are value business partners and our shareholders.
Recent times certainly have been extraordinary.
Green Briar and its people are responding to challenge.
And we've adapted very quickly.
The rail industry shipper traffic.
Already had been weakened by trade issues.
Back to the pandemic.
And then came the oil shock and Jimmy.
More recently.
We have all been saddened.
By the social and ratio.
And Josh.
And perhaps and time spent by.
So many in social distancing in isolation.
I have given us the gift.
A reflection.
Just co founding Greenbrier, almost 40 years ago, and my partner Alan James.
Well like Mr., James our success has exceeded.
All of our expectations at the time.
If the game began with an investment of $5000 each other.
Basement, and 50 50 handshake deal through partnership.
Based on either of us being able to pledge our entire network.
And that business transaction.
Today, we are among the largest freight railcar transportation equipment and service providers in the world.
From a 300 car fleet out of hunting in West, Virginia Green Bar.
Hi, being named after the Green Briar resort bites expressed permission as ground too.
One of the most valuable franchises in the real service area and the world.
It's been a fantastic journey with many ventures and contributions from so many participants along the way.
Mark and many to name.
This is not the first time or the worst time.
Our career.
Our industry has gone through.
Hi difficult situations.
The playbook as well known.
Respect for capital.
A quick reaction sizing of platforms and then recovery.
And our industry is quite versatile and quite.
A brief covering very rapidly as we've seen in past recessions.
Green Briar.
Hi.
In the face of the dual challenges pandemic in the economy, as taking swift decisive and difficult actions.
Undoubtedly more will be dependent notice in the months ahead.
Yes, I am confident.
The Greenbriers management team is up to this test.
Again, I want to thank all of our employees customers shareholders, who believe in US we will not let you down.
I am honored and humbled to lead Green Burns moment in time.
As we begin allow me to briefly share my reflections on regional recent social events.
Seidl events have occurred within the short time since we last held call together.
These events.
Once again reminded us.
Of social in equities that existed in our country long before the Covance 19 banning.
And pandemic reached our shores.
We can drop off from the recent despair.
Okay and positive.
Necessary changes at Green bar, we will pursue change by living our core values.
Or over 40 years respect for people has been woven into Greenbriers DNA.
We respect people because of the uniqueness they bring to us and the diversity of supply and experience embedded in our culture.
In addition.
We strive to do what its right what is right.
Just the right thing to do.
And is protect you seem to do.
Dozens of studies on productivity overdone.
Last hundred years have demonstrated the attention to the workforce, whether it's through the Toyota production system.
Other production system, such as Greenbriers pays off.
Greenbriers recognizes that a diverse workforce and allows us to better reach our business objectives.
Bring together employees with a range of background and experience helps solve business challenges more effectively.
And allows us to better serve our customers.
Well, we know all this to be true we also know.
Corporations, and we need to do more.
Greenbriers, establishing an internal framework to engraving efforts to combine to combat social inequality in equities and these will go deeper into our core strategy.
As a company, we're doing our part to address in quality and any part of the solution on environment.
Firemen diversity and inclusion.
We will be metrically driven.
In our efforts and we expect to be held accountable.
As we seek continuous improvement.
Part of Greenberg services to society, however is maintaining a successful business.
A successful business enterprise.
Today, we are focused on the priorities I detailed in her last earnings call.
What you're providing for the safety and security of our workforce and ensuring the economic well being of our business.
Good progress has been made as we move through a phased in measured response, a balanced response appropriate to the conditions.
We face.
We are focused on liquidity cost reduction capital preservation respect for capital and all of this is beginning to show in the numbers, but in the quarters ahead ahead.
Moving on how circumstances go.
Sure certainly.
Circumstances continue.
And there is no major improvement in our sector or the economy, you will see those metrics improve.
And improve.
We continue to monitor the health and wellbeing or more than 13000 employees worldwide.
As you will hear from Loring these protocols in place for any potential over 19 exposure.
These are reported immediately and immediately addressed.
Our protocols are being enforced by our management with a high degree of discipline.
Greenbriers experienced rate with active cases has remained very low.
As a percentage of our entire workforce our recovery rate is outstanding.
We extend our wishes for a full recovery into each affected employees and their families.
Slow the spread of the virus each of our manufacturing plants as you're meeting or exceeding CDC recommendations as we safeguard our employees while maintaining operations.
And also as Lori will address later.
Mike Hi levels are important virus spread in Mexico and Brazil.
And now concerning Lee and more recently in the us.
Our safety protocols and our so Swift response to identify cases seven limited our exposure.
The plant wide outbreaks.
Swiftly acted to permit clusters.
And to contain any outbreak.
So we have not.
Charlotte.
I have had the instances that have occurred at other businesses.
Stage and around the world.
Financially, we have met or exceeded our near term goals. Our consolidated cash balances have increased by over half a billion dollar since the start of the court.
We've decreased our net debt by almost 200 million.
Our efforts to rapidly reduce.
Selling and administrative expenses also contributed to our financial performance in the third quarter. Despite closing of some manufacturing lines.
Which have.
Blur.
The real effect.
Of our initiatives in that area. Even then SNA expenses increased by almost 10% seek which sequentially and we expect further reductions.
End of this fourth quarter and into 2021.
The benefits of our expense reduction initiatives.
And our capital preservation and drive more liquidity, while we're operating are essential businesses around the world will provide lift for the business additional cash flow as the economy moves through this difficult time into recovery.
And the pandemic has the effect for all businesses to consider a leaner business model with less overhead.
Capitalizing on some of the benefits we have learned.
Through remote operation.
And at home work.
Our manufacturing model.
Is built on flexibility.
Remember that before the outset endemic we already have begun that reduced the size of our manufacturing footprint.
In Brazil in the United States in Mexico, due to anticipated lower levels of railcar demand and reduced aftermarket activity.
Adjustments to production and staffing levels and began in September of last year.
Continued into the third quarter of this year as we idled capacity in North American facilities as well as it Green Briar rail services locations. Since we began that particular initiative, we've adjusted North American operations through workforce reductions equal to approximately 40% of Greenbriers.
North American workload workforce.
Prior to the third quarter. The majority separations occurred at two of Greenbriers three Mexican operations.
It is always a tough experience and emotional experiences to separate from our colleagues.
And from so many of our friends.
Possess so many talents and good qualities.
This time around is no different.
In the third quarter, we do the necessary difficult actions to suspend our railcar manufacturing operations lines is gunderson, our long time flagship facility in Portland, Oregon.
The third quarter also side Green Briar eliminate.
Wide range of administrative positions.
In all our business units in corporate departments.
These actions resulted in a reduction of 1600, North American place in the third fiscal quarter on top of the almost 4000 physicians.
Which earlier were removed.
Since the beginning of our fiscal year in quarters one into.
All impacted employees received severance benefits tied to their linked to service fully now reflected in the financials that you'd have seen.
Core and designed rich them into government programs. This is part.
Our philosophy of respect for our workers.
Respect for our workforce.
Severance benefits bridge was needed because public programs have too often Dennis unacceptably delayed and delivering earned public benefits.
Two are working citizens.
Who become through no fault of their own out of work.
It was especially hard department.
With workers at Gunderson persevered with us through many down cycles and natural American national emergencies over the course.
Or 35, your ownership of that operation dating back to the FMC Green and rail division and dating back.
Through the Gunderson brothers business begun on the waterfront.
In 1918.
Greenberg's Jones Act compliant Marine business continues that gunderson backlog, there extends well into calendar.
2021, with a strong pipeline for new vessel orders.
So we will continue to operate gunderson.
On a much smaller scale.
As I said at the start we've seen a great happened in a short time.
Fortunately, we have a well.
Earns experienced team.
And this isn't are not.
Our first rodeo.
No matter what comes next Greenberg stuff and Greenbriers Reg.
If necessary.
We are prepared to manage through the worst of times.
I believe me. This is not what were some times we've had were sections in our industry times in the seventies, when only 5000 cars per year.
Sure.
Phil.
That was when we acquired Gunderson seeding opportunity.
According to great. Carl Icahn is when things are tough you want to look for.
Good opportunities Greenbrier is an excellent opportunity for investments.
Greenbrier has built an incredible franchise in railcar engineering manufacturing lease originations leasing and management services, we have loyal customers all over the world. We have a strong position in the North American marketplace based on efficient and flexible plants, we manage one quarter.
The North American railcar fleet in one way or another week accidentally.
Green Briar.
Orders to come.
We will preserve its financial stability.
Bill.
Large pool liquidity.
To deploy sensibly.
In capital opportunities in the future.
Prudently and it will focus on our core businesses will work to shrink our footprint and increase shareholder value.
As we progress ahead.
Now over to Laurie.
Thank you Bill and good morning, everyone.
Our fiscal third quarter was quite strong in the midst of the pandemic and resulting economic downturn.
As Bill said I'm very pleased with green bars ability to respond quickly and decisively to the world altering events over the last several months.
I'll spend a few minutes on the quarter and then provide an update on our closing response.
We delivered 5900 railcars in the quarter, including the syndication of 1600 units.
As I stated previously the timing of syndications can be lumpy and a higher number this quarter offset the lower numbers that you saw in the first and second quarter of our fiscal year.
This quarter, we received orders for 800 railcars valued at about 65 million.
Orders originating from international source is accounted for over 50% of the activity of the quarter and this mix did impact the average sales price in order activity.
Our backlog remains strong at 26700 units valued at $2.7 billion.
Our multiyear manufacturing backlog continues to be the source of stability in difficult times and provides us with the resilience and a bridge to an industry dynamics and economic conditions improve.
We don't expect him answer recover overnight and the number of cars in storage represents the highest level of railcars store on record.
We're nonetheless encouraged by the activities of our commercial team and conversations we have going on with several of our customers.
I am orders in the quarter were clearly low by any standard we have maintained momentum.
And there is a reasonable amount of current activity is subject to documentation and final confirmation that is not reflected in the current backlog.
Our North American manufacturing group performed Resiliently, and a uniquely challenging quarter.
In addition to building several thousand high quality railcars efficiently the management team enacted the various protocols needed to ensure employee safety, including daily temperature checks for thousands of employees redesigning workflows and stations to allow for social distancing and introducing heightened cleaning up.
70 across the network.
These actions have allowed our facilities to remain open while providing a safe working environment.
And further pleased to report that the operating performance of our Eri manufacturing facilities continue to prove this quarter, reflecting the benefits of remedial actions taken our first quarter.
Performance in Europe, and Brazil was inline with expectations.
And as I already stated the order activity internationally and specifically in Europe improved throughout the quarter and accounted for about half of this quarter's orders.
Europe's economy is slowly reopening although it will take several months before it's back to pre coal that levels.
Brazil's economy continues to struggle through the pandemic and we're working closely with our local management team.
To ensure the safety of all of our employees.
Our wheels repair parts operation revenue was impacted by lower rail traffic and fleet utilization.
While continuing operating efficiency improvements in our repair business drove improved gross margins in the quarter.
Management team did an excellent job enacting our response plan to coal that across the entire network, allowing employees to work safely providing essential services for the North American.
Freight rail network.
Our leasing and services group performed well in the quarter, even with traffic and commodity driven headwinds.
The earnings at the group was negatively impacted by 4.3 million charge related to a few financially distressed sand companies.
A portion of the charge was driven by the new lease accounting standard.
God bless all the accountants.
These charges were more onetime in nature and are not expected to repeat going forward.
Our lease syndication capital markets team had a robust quarter as I already said was 1600 units syndicated generating proceeds over $180 million.
This is our very significant accomplishment given the volatile nature of the financial markets over the last several months.
And now turning to our coal that response.
Our incident response team continues to coordinate our efforts related to the pandemic, we're operating under a dual mandate of maintaining business continuity alongside ensuring employee health and safety.
Kept our factories and shops continuously operating through the pandemic.
Whenever we have a cavatt positive case appear at one of our locations.
Strict adherence to our current of ours guidelines have ensured the health and wellbeing of Green grass valley, while allowing our essential operations to continue.
We've undertaken several hard decisions over the last several months in response to the crisis.
And as part of our plans to increase liquidity, we have reduced capital expenditures by $50 million.
We have reduced annual overhead expenses at our facilities by $65 million.
And we've reduced annualized selling and administrative expense by $30 million.
This activity has cost us apart from some of our long time colleagues and in many cases from.
But these actions along with the necessary rational rationalizing our production capacity in North America will create a stronger green briar in the long term.
Our business remains healthy despite the current commercial environment and our leadership position in our core markets in North America, Europe, and Brazil is unchanged.
This requires hard work and continuous focus.
But it's not our first challenge or first rodeo and it won't be our lab.
No matter, how our fourth quarter or the remainder of 2020 plays out we.
We know our role in the transportation industry remains vital the safe and efficient movement of good integral to economies around the world if factors into any recovery, both near term and longer term once a greater degree of stability and predictability has.
Now I'll turn it over to Adrian.
Thank you Laurie and good morning, everyone.
As a reminder, quarterly financial information is available in the press release and supplemental slides on our website.
As you've heard from Bill and Laurie we delivered strong results in the third quarter, despite a challenging environment.
Highlights include revenue of 763 million and deliveries of 5900 units, which includes 500 units delivered in Brazil, and 1600 syndicated units.
I'd within gross margin of 14.1%.
Selling and administrative expense of 49.5 million is almost a 10% reduction sequentially.
The effective tax rate in the quarter increased to 41% driven largely by a foreign currency related discrete tax item at our Mexican subsidiaries. This brought our year to date tax rate at 33%.
As background for us GAAP purposes, we keep the books for these entities and us dollars.
For Mexican tax purposes. The books are kept in pesos. Normally these results are similar however, during third quarter. There was a significant devaluation of the peso, which resulted in a disproportionate amount of peso taxable earnings and peso tax expense when compared to our US dollar earnings for the quarter.
The impact of this item on our third quarter Mexican taxes is treated as a discrete tax item Rotterdam money tax items, which are measured over the course of the year reducing volatility.
Based on foreign based on current foreign exchange rates, we expect a lower effective tax rates in the fourth quarter.
Net earnings attributable to Green Briar of 27.8 million are 83 cents per share.
Excluding approximately 7.3 million net of tax R 22 cents per share of integration related and severance expenses.
Adjusted net earnings attributable to Green Briar, our 35.1 million are one dollar and five cents per share.
Adjusted EBITDA in the quarter was 99.9 million or 13.1% of revenue.
One of the questions. We've received regularly is to try to quantify the impact on the business from dependent.
The longer term impact is hard to know at this point well, we are able to quantify approximately 3.9 million of identifiable cost related to covert 19, and the third quarter.
These costs included items like personal protective equipment additional labor expense.
Cleaning services and additional interest expense from our precautionary revolver draw downs.
We view these items as vital to ensure that our employees are protected and facilities remain open.
Turning to synergies, we successfully achieved 5.6 million of pretax cost synergies related to the IRI acquisition in the quarter and 12.7 million year to date.
We're pleased with the prop progress the integration team has achieved on continued to be optimistic about the long term benefits from the acquisition.
In the quarter Greenbrier generated over 220 million of operating cash flow, reflecting robust syndication activity and reductions in working capital.
As production rates moderates working capital reverses and remember our generates substantial cash.
At May 30, Onest Greenbriers cash balances of 735 million and additional borrowing capacity of 137 million.
In combination with the spending reductions outlined by lower rates, we've achieved our liquidity target of 1 billion.
We will continue to enhance greenbriers overall liquidity and with no significant debt maturities until late fiscal 2023 on fiscal 2024, we're on the path to emerge from the pandemic stronger company.
Greenbriers Board of directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long term shareholder value.
Greenbrier has declared a quarterly dividend for 25 consecutive quarters with periodic increases.
Today, we are announcing a dividend of 27 cents per share representing a yield of 5% based on yesterdays closing stock price.
We will now open it up for questions Christie.
Thank you at this time, if you would like to ask a question. Please press star one.
Please state your name clearly along with your company.
So that we need introduced to you.
Ken Please press star one to ask a question.
Our first question will come from Justin long with Stephens, Sir Your line is open.
Thanks, Good morning, and congrats on the quarter.
Thank you Justin congestion.
Maybe to start with deliveries and that fiscal third quarter. Adrian I think you mentioned about 500 units when Tim Brazil, but for the remaining deliveries could you give the split between North America and in Europe, and then also going forward. It sounds like you have pretty decent.
Visibility in deliveries. The next couple of quarters I was wondering if you could give us.
Some kind of rough sense of how deliveries should shake out the next couple of quarters based on your backlog.
Sure well Justin this is Justin.
Ill jump in that briefly so just as a reminder, we are not explicitly providing guidance on the quarters ahead at this point.
What I would say is that we had about 700 units delivered in our European operations in our fiscal Q3, and we would expect it to be a similar number and our fiscal Q4 going forward.
But again, we are things continue to be very fluid in the worldwide railcar network.
Okay. That's helpful and maybe to follow up on North America do you think that North American deliveries can remain relatively flat sequentially in the fourth quarter as well.
Okay.
I would expect.
Port Fourchon deliveries will be down somewhat from the third quarter.
Thanks, some of this has to do with syndication volatility as well as.
Lower Ingo mentioned that our production rates, we continue to.
Take a long hard look at our rates and our burn rate out of our backlog going forward just to make sure we are managing things well and.
Responsibly.
I'd like to just add the yesterday, we had exited meetings on the subject and it appears that the remedial work, we've done and sizing facilities stabilizing the lines and flexible lines, particularly the ones in Mexico, we're pretty much in balance would flow outflow in so I I think we are.
I am modestly optimistic we will view will maintain momentum.
On deliveries, but again, it's very hard to tell the future as on the order flow is as Lorie mentioned, we have been very cautious in booking orders, we have a fairly large number of transactions and process about I.
It was fairly significant compared to the.
Order.
Or magnitude is three times the amount we booked in the quarter.
About half in Europe and half and.
The United States So I.
I think that things will be less opaque the into our.
During quarter, but I think we're still looking at it a reasonably strong quarter given everything.
In the Q4.
He is going on.
Great Thats helpful. On maybe as my second question I wanted to focus on SNA expense.
Progress there and some helpful commentary there there were some unusual items in the quarter. Some charges. So could you give us a rough sense for for where SNA should shake out on a run rate basis. After all the changes you've made.
Well I'll take that Len.
As I think I've said, our Bill said, we do expect fourth quarter, selling and administrative expense to kick down from what we saw in the third quarter part of that driven by we did have some severance costs and the like that occurred in the third quarter. This management team is.
Laser focused on making certain that we manage our cost and manage our spending so that we are rightsizing and having the right folks on our team for when demand comes back.
One of the things, where it's easy to manage our cost right now there's not a whole heck of a lot of travel going on or entertainment.
But we're looking at every single part of our cost structure.
And reducing those with that will go into our fiscal 2001 planning as Justin continues to remind us we're not we're not giving guidance.
But it is this team's focus to maintain the momentum that we've achieved in the third quarter and continue that into fiscal 21.
Okay I'll leave it at that I appreciate the time.
Acceptance thanks.
Thank you. Our next question comes from Matt All caught with Cowen Sir Your line is open.
Good morning, Thank you.
We take a look back at the manufacturing gross margins I think they peaked in the first quarter 2016 up closer to 24% Simone.
Can you go about 10 years ago and.
I'll begin a plenty 11, they were in the mid single digits.
After the great recession.
Looking out.
For both for the next three years of Max.
Upcycle add right down cycle.
The company looks much different now can you give us some updates on the range of the cyclical range all the gross margin.
Sure, though Matt it's difficult I mean, there's so many variables right now in this environment, it's difficult to give specific guidance, but I. Appreciate that you ask for a range I would say that we're focused on.
Margins being likely in the low double digit area.
We might have opportunities for that to be higher and will work very hard to make certain that theyre not lower and I think as you've seen in the past as the cycle improves we have tremendous opportunity to move those margins back up into the mid to upper.
Team.
And Laura.
What about in the current down cycles, you have like and terminal more that you'd like to not go below.
Clearly the company is much much better.
Position now than it was even six or seven years ago.
It's a good question Matt.
Again, we have a strong team and we're focused on reducing our costs.
I would expect that there's there's a.
Chance that our margins will get into the single digits, but I expect them to not drop as low as we've seen and passed down cycles.
Okay, I guess the targeted floor is high single digits bounce I think Thats fair, yes, okay.
Managers chime in on this I think we're all.
Facing the same things, but theres quite a lot of pricing discipline that.
The major builders are introducing into their plans.
We do have a flow business it makes sense.
Pretty interesting and I have to constantly.
Ask you all to remember that there's so many different kinds of freight cars, some tending toward more commodity cars, which have lower margins than others or proprietary features such as some of the lines. We have added the or you're right.
Our facilities so it depends a lot to the average depends very much on the mix.
And that's something that you guys are two continues or we're not as you do such a fine job.
Doing that.
So you're right. We're a very different company now we've got much more diversity of product. So we're always able to.
Service parts of the markets that can be Haas uneven even in a down markets and.
Got a much lower cost footprint that allows us to be very efficient. So that's one of the reasons why.
Our low should not be as low as what you've seen in our distant past.
That's very helpful.
Bill you mentioned pricing discipline and not only are you guys different now than a few years ago, but the whole industry landscape is that trend because.
Ill.
Competitor win with whom you will have volume of 75% or more of the.
Market share is really focusing primarily on leasing. So you couple that with the fact that you'd just hope to consolidate the industry further and then rationalize your capacity. So it was out why we're seeing more pricing discipline and this down cycle relative to.
It's down cycle.
We're starting to scale benefits.
You have an actual planning on pricing.
Hey relating to the sizing of capacity we've been chronically.
In a situation in this industry throughout most of the time I've been in overcapacity, and arguably with flash manufacturing being the new buys were.
Railroads have buzzwords, we have flex manufacturing in our industry.
Perfect.
Our colleagues that are friends that Trinity to continue to make their facilities more efficient.
And to size there their facilities, if we understand their plans. They do have a very good focus on leasing but their excellent manufacturers as well.
Theres.
There's a lot of things that go into this I think the.
Customers recognize the need for a small a strong supply industry. It's not just the car builders, who is the tip of iceberg, but is the smaller component manufacturers getting hammered by a downturn like this so I expect the railroads the shippers to take opportunities to be in the market and on it there.
So why should be world.
Push everybody too.
Breakeven pricing.
Cash, which can sometimes happen I think that they will allow and I think that sensible.
Essential pricing policies will prevail on the sell side.
To allow margin that will allow the industry to keep the strength. During this downturn. In addition, we're working on legislation that can address this issue very aggressively we have a lot of car store.
But it's not as bad as it looks we have personal level of storage even in 2018 of almost 280000 cars are you looking for coal cars the younger.
Ashley covered hopper cars and make that up now the sandguard almost 50000 sand cars.
That go into that number it doesn't take much too.
Improvement in or a decline in velocity velocities.
Yeah, that's probably 150000 railcars locked up in the temporarily high velocity that low traffic in the industry as provided to everybody as that snaps back if snaps you can snap back very rapidly. So one of the reasons, we're more optimistic says that underlying theme.
Very helpful. Thanks, Bill and thanks, everyone.
Thank you. Our next question comes from Bascome majors.
Uh huh.
Thank you your line is open.
Hey, good morning.
I was hoping that you could give us.
At least a directional look into a couple of other items that hasn't been discussed.
You would.
Seemingly have some visibility into order discretion in managing it.
And that would be timing of further syndication activity or or even a reduction in some of the Phil the finished railcar inventory thats not only use thats on the balance sheet.
James on railcar sales than.
In may be on top of that the relationship the non controlling interest.
How that relates to manufactured provinces that seems to look more favorable into this temporary arrangement with Jim So thank you.
Yes, asking so from a syndications perspective, we will continue to syndicate railcars in our fiscal Q4 and into our fiscal 2021.
Much of our syndication product is driven by the car types in demand in North America. So if so that will be kind of the governor going forward as we progress into 2021.
And I would just add in there that you know as we've talked about in the path. We are we have great lease origination capabilities and so.
Through the third quarter, and we expected to continue this quarter and going forward. We will continue to originate leases build the railcars, which will go into our railcar telfer syndication and feed into that model that justin's referring to.
And then with regards to gains on sale, we would expect that to move down into a more historical number going forward into fiscal 2021.
As a reminder, this is the final year of our.
Kind of agreement or alliance with Mitsubishi on that front. It was a three year agreement to a kind of work on our lease fleet and refreshing for reimbursed purpose, but also to allow them to fill that out so.
While we continue to have a strong ongoing multiyear agreement with them from a new railcar perspective.
I would say that our historical gains on sale is a little more realistic going forward and will be more opportunistic based on activity in North America.
And the last piece about non controlling interest in Jim So.
That that looked a bit more favorable versus your overall profits this quarter trying to understand how durable that is thank you.
We had a indicates in our last press release that we would have a benefit of 25 cents for the back half of the years. So you did see that pace and in Q3 and should see continue into Q4 and then we'll also have a benefit for the first six months under this arrangement next year and that will be.
The lower rate. So we had indicated 40 cents over the 12 month period of the arrangement 25 cents and the back half of this year part of that delivered in Q3 and.
Then about 15 cents for the first half of next year.
That's assuming various production levels.
Thank you raise your and your last one from me Bill Congrats on officially marking the path to retirement year, you would make some comments earlier about I think quoting Carl Icahn when things are tough you want to look for good opportunities. It was this referring to are you seeing value in your company shares.
Here are you actually suggesting that Greenbrier I could go on the offense to perhaps be more acquisitive in this downturn. Thank you. It was not the latter it's the I think their stock is that given the franchise we've grown.
Team has grown and the way things are looking over here, we're really focused on the right levers right now.
And I think we can create really strong cash flow I bought a 100000 shares in the last opportunity.
I have.
The understanding if you read the agreement to.
Take stock in lieu of cash I may still.
We continue investing I'm very bullish on Greenbrier I've seen this cycle will go in earlier times I know that the industry can flip around its baffling to people who are not immersed in the industry, but.
It is wireless cyclical company, a very very strong company, we have strong reliable competitors. We don't have the type of overcapacity that existed in earlier errors.
I really believe that we can drive cautious we of course value opportunities. We are can tracking our footprint and consolidating we're not looking at new acquisitions.
In any way shape or form.
This point in the.
In the crisis. So soon is where through our phase one which is of gravity capital preservation cost reduction.
We can look at.
Meritorious growth, let's first goal is natural run out of cash.
Business like this and we are going to have a good level of cash we're going to exceed our goals.
Beyond the $1 billion goal and we're going to be able to deploy capital sensibly, including continuing to consider.
The.
Returning.
Cash to shareholders through the dividend policy and we may revisit.
Stock buybacks as that opportunity might exist, but right now we too early to get into all that but it's certainly I just think the company's undervalued is currently at its current price.
Thank you Bill.
Thank you. Our next question comes from Steve Barker with Keybanc capital markets.
Sir your line is open.
Hey, good morning.
Hi, Steve remain high.
Remembering back to the wind down on the shale plays your earnings were more resilient than some people expected. So do you think this down cycle will be the same and just generally speaking given all the cost cuts what you see in backlog syndication opportunities International would you expect a big decline in earnings next year versus this year or could that be stable plus.
Minus.
I think it's a great question again, there's a lot of uncertainty and I appreciate you.
Pointing out the resiliency that we saw and how many didnt think that we would be as resilient as we were I think if you look at.
Expectations from the folks to cover Green bar you can see it is a very very wide range.
We expect us to be.
More in the area, where you're seeing groupings.
Those outlooks.
Do expect I mean, we are going definitely into a period of time are lumpy delivering fewer railcars, but I don't think where.
I don't expect us to be in a period, where were reporting losses that maintaining.
Modest margins and continuing to be focused on keeping our cost level appropriate.
So even if you expect reported a loss in a specific quarter you would you wouldn't expect that for the year.
Or a year out would be my expectation is yes, we I don't think we wouldn't want to be quoted as saying, we expect awash in any quarter. The that requires our foretelling, the future and theres plenty of pundits out there who.
And foretell the future one way or the other way and probably none of them are correct. So I think we're going to be disciplined machine focused on what we've told you we're focused on and we'll let.
The future.
Unfold as well I am optimistic about the future Burns many of the reasons I have expressed in many more that we don't have the time to get into if you look at the demographics you look at Fcr as recovery rate, they're going back in 2022 too.
Replacement plus levels of demand.
And again this industry because of the demographics of velocity and the stored demographics.
Really flip back quickly. So it just so hard to tell and that's why we're not going to give guidance by the way, we don't give guidance in the third quarter anyway, we always weight to the fourth quarter, if we're going to give guidance, which I doubt we will.
Unless things change dramatically in the future.
Like the next couple of months everybody's really happy.
And.
19 is gone away, we have a vaccine and there's plenty of things look forward to this is nothing compared to what has gone on before nothing.
It's just unfortunate, but we can log answer it.
Got it and to your point on a small increase in velocity could on one cars in storage pretty quickly I'm curious if you think the industry needs to see a backlog contraction like we saw in 2009 or is there enough specific car type catalyst to that that the backlog.
Doesn't need to get down to those kinds of levels.
Again, it's very hard to tell the future.
Typically in the second cycle, you see that backlog decline.
We all have.
We all have tactics that we used to counter that Greenberg generally does much better because of its commercial go to market strategy in a downturn, we have some really great accounts multiyear orders, particularly.
Very strong companies that are committed to multiyear relationships. So it's very difficult to say I I would prefer not to.
Prefer not to.
To give you any specific guidance great question, you guys are always trying to guess.
Guidance, but.
Where we were slogging through this.
Very much like a price by we're just we're in the ring and we're doing what the right things and we're going to we're going to get out of the other end and I think we're going to win.
[music].
Just one last follow up to that so bill you've seen a lot of cycles is the primary thing you're looking at to kind of risk make you feel better about where we are just traffic levels or is there is there anything else that you would look to is kind of leading indicator too.
Moving into a more comfortable position.
I think the general economy, you know, we take a real hit to the economy at 5% GDP declined 2020, probably use consensus roughly maybe a little lender consensus, but then if you look at the stats.
For that and you look at.
Maybe 4% growth.
Under a moderate scenarios look at just look at the facts I look at the projections from repeatable economists unemployment claims have gone in March for 6802.
Projected are all the way down to 1.8.
Billion in May.
We're able to reopen the economy, despite the ups and downs Workover 19, that's going to produce more income government subsidies have been very helpful War is probably on the way depending on your political preferences, maybe a lot more maybe.
We certainly more.
Maybe not as much under one administration or the other.
One type of Congress and the other.
And so you look at these things and you just see that.
Well, we've taken a tremendous hit to the economy.
And to the health and probably confidence.
The consumer.
All about the math.
And it's.
The TR has a us recovering to 50 60000 cars 20 to 23.
Our our own for objections are little more optimistic than theirs.
In 2021, 2020 2021 so.
It just just a sense again on on that.
Carloads are.
Recovering we expect them to recover in 2021.
They are down 8%, but that's a lot better than being down 12, and 17 in 20 years earlier in 2020.
We expect a very rapid recovery cartilage soon as the economic fundamentals are restored.
I think just to add on to that balance.
Looking at what's going on in the overall economy and then getting.
The manufacturers backup that service providers that are going to transport goods on the rails, right and getting that going again and not will then start.
Compounding that rail traffic recovery, which will then.
Result in increased demand again.
Yes, we have an industry coalition that promoting and working with Congress on a railcar act it would be an incentive in future stimulus to.
Scrap and take out.
The inefficient cars in the storage statistics Theres just tons of frictional cars. It could be taken out that would be a very attractive program. We've got a bipartisan support for that whether that will get through this congers that form our to say, but we do expect infrastructure built to come in that will be a boost and.
If we could do something to help shippers and railroads address their obsolete cars, the stored cars would make or a rich and shippers more efficient it would help the economy would be green obvious socially good thing to do and we've got a real strong team.
Disciplinary team.
Through our supplier associations.
Address that.
So there's plenty of things that can be done.
Two.
To address these things are quite rifle shot specific and I'm optimistic that we'll see better types of these sooner than others think depends a lot that were on cobot 19, and what's happening right now is not.
Not encouraging.
Spiking back.
Okay.
That's a great detail. Thanks, so much for the time.
Thank you.
Thank you. Our next question comes from Allison Poliniak of Wells Fargo. Ma'am. Your line is open hi, guys. Good morning.
And it's a nice efficiencies coming through on the wheels repair and parts business, making the assumption that you know the worst in traffic is now behind us.
How should we think of that EBIT margin is that a decent one to build time are there. Some nuances there that leads me to be mindful of going forward.
Sales in this adjustment I would say I think it's a good starting point and I think if traffic continues to improve we believe that we would see improvements in that going forward.
But I would say that that is a business that has the most explicit exposure to traffic immediately so to the extent traffic kind of is volatile moves up or down. That's that's what we would expect disease and thats youre, referring specifically to the wheel side, but it's also a parents eyewear.
Cart not rolling into storage that asset owners being interested in repairing their cars and that's where our management team is working very closely the management team of the repair group working very closely with our management services team, where bill indicated we manage according to the North American fleet and so it's looking at how can we.
Capitalize leverage that relationship we have.
Our customers, who need their cars repaired and doing that in some of our shop, if we can do it and inefficient and quality way.
Allison I appreciate you, taking bringing it up but to put a plug in for Lora here she's been charger that business unit, along with Richter for a year now.
When she was promoted she took that.
That's very challenging assignment on would give or one of the harvest assignments.
Listed and she had record really turned it around we've got new team in place we rationalize the network.
Our repair business is actually making money now, which I didn't think I would see in my career the way it was quite but they did for thank took a lot of hits and she is righted the ship and I got to congratulate her I think more good things are going to come out of that in the future.
That's great and then just one clarification on but one of the question is Bascome asked in terms of Gen.
I know you talked about 25 cents in the back half of this fiscal year in terms of the restructured agreement is that weighted towards Q3 years that more balance between both just trying to understand in terms of my linked bonds between both in both okay perfect. Thank you.
Thanks out ourselves.
Thank you. Our final question comes from Ken Hoexter of Bank of America, Sir Your line is open.
Great. Good morning can we dig build maybe dig into a pricing a bit more your backlog fell from about $103000 average per car to 101000, but if I looked at the new orders.
Book It drops all the way down the 81000 down from about 107000 average ASP per car. So maybe you can talk a little bit about mix change that's going on or is it. This environment, you really do get a bit more aggressive on pricing to keep the lines working.
Thanks, Dennis as Lori I'll take that.
About half of our orders this quarter were generated in Europe, where the price that mix of that car type is what brought the average sales price for order at that lower than what we've seen recently, but I think it's a testament to our strong backlog and our strong pricing discipline that our overall backlog.
See only moved just a bit.
Right also just basic statistics, we learned and as a school bad bad sample size not really characteristic of a maybe the next we expect going forward.
800 cars mixed 50 50.
Your domestic probably not.
Characteristic anything in particular.
So is it is it more Europe, U.S. or North America than it is that type of core or are you, saying that type of car in Europe is typically a lower margin or lower maybe not margin, but maybe just lower ASP type of built.
The cars that were ordered during the third quarter in Euro half were of a car types that had a lower average price just like if you think about years and years ago. When there was heavier intermodal demand and in those periods of time, depending on mix. It could bring your average sales price down so.
It wasn't being overly aggressive on pricing. It was just the specific car type in Europe.
The lower Asap.
Okay. That's helpful.
And then EG and maybe jumping over to the finances. It looks like I know in the large moves you've made to you get to that billion dollar target. It looks like days sales outstanding dropped from 47, a 30 days have you change payment plans with with customers with your major customers is that another trigger you're looking at to that kind of.
Cash cash on the books.
Hi, it's more syndication.
I would have driven that change.
So we did not change terms in other words.
Just a mix of direct sales versus syndication activity and the quarter versus what you've seen in prior quarters, where we had less syndication activity high percentage of our customers have excellent credit ratings. They have followed.
Admirable discipline and they haven't they haven't stretch.
They're payables I think Thats a significant factor June we spend more time focused on collections on okay. No. It makes sense I mean, given you have larger obviously major customers, who are well capitalized yeah. Just wanted to see if you were putting the.
Screws on that but it sounds like you just to change and where the cash is coming from for the quarter.
Alright, thats great. Thank you very much.
Thank you Candice Thank you Ken again, thanks, everyone.
Thank you very much everyone for your time and attention today and if you have any follow up questions. Please reach out to myself, Justin or leverage Aquarius and have a great weekend. Thank you very much everyone.
Thank you stay.
Thank you. This does conclude today's conference you may disconnect at this time and have a good day.