Q3 2020 GATX Corp Earnings Call
Good day and welcome to the G. T X 2023rd card for third quarter Earnings Conference call. Today's conference is being recorded at this time, a bunch turn the conference over to the director of Investor Relations, Sara Cherry Hill women Muslim and please begin.
Thanks Casey.
Morning, everyone and thank you for joining GHX is 2023rd quarter earnings call.
[laughter] Kenny.
Yeah.
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[laughter] <unk> discussion today that catch up by looking statement.
[music] trends could differ materially from those statements or forecasts.
The monetization feature function of it factors, including and I really am.
This stuff in <unk>, 10-K, and 10 Qs for 2020.
GHX assumes no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances.
I'll briefly recap our third quarter financial performance.
I hand, it over to Brian for a short discussion around north America's maintenance operation as well, it's a little choice Empires finance affiliates result.
Earlier today, G.H. actually 40, 2023rd quarter net income from continuing operations of 48.2 million dollar 36 per diluted share.
This compares to 2019 third quarter net income from continuing operations of 37.2 million or a dollar and three cents per diluted share.
Year to date 2020, net income from continuing operations, which are 132.4 million or 374 per diluted share.
This compares to 138.7 million or 379 for diluted share the same period in 2019.
The 2023rd quarter and year to date results include a negative impact of 12.3 million or 35 cents per diluted share related to the elimination of the previously announced tax rate reduction in the United Kingdom.
Between 19 year to date results, including net deferred tax benefit of 2.8 million or seven cents per diluted share the latest trend in after tax rate reduction in Alberta, Canada.
These items are detailed on page 14 of our earnings release.
In the second quarter of 2020, GHX completed the sale of American Steamship Company.
Accordingly.
Segments reported as discontinued operation and prior years have recast to conform to the current presentation.
Now I'll briefly address each segment.
At rail North America, our fleet utilization remained high at 98 entrepreneur, So I mean.
I mean, you will see catch rate was 58.1%.
Although absolute lease rates for most car types are flat to slightly higher compared to the second quarter we saw.
We expect lease rates remain under pressure given.
<unk> continued oversupply railcars from the market.
I love volumes relative to 2019.
Third quarter renewal rate change of Gtx is me index was negative 29.4%.
Reflective of the ongoing challenges in the marketplace.
So the strength of the expiring lease rate that generally commence at the height of the market six to seven years ago.
The average annual charges associated with the LPI 29.
As noted in the earnings release.
Despite higher see China as a result of lower renewal success in the quarter, our maintenance cost performance was better than expected, which I will address further anymore.
We continue to successfully placed new railcars I committed supply agreements pretty diverse customer base.
We have placed all 8950 railcars.
24 chain Trinity supply agreement and over 1670 railcars for 2018 Trinity supply agreement.
Additionally, we have placed over 3470 railcars <unk> 18, Greenbriers supply agreement.
Not really it's available schedule delivery under our supply agreement in the second quarter of 2021.
Remarketing income at rail North America was 7.9 million for the quarter and 39.4 million year to date.
With a rally international.
Both GHX rail Europe, and GHX role and yes, all steady demand for railcars during the quarter.
GHX real you're up maintain high fleet utilization at 98.2%.
The lease rate environment in Europe remain supportive of small increases and renewal lease rates for most car types.
DHX really yet religiously to over 4000 railcars, while maintaining utilization at 100%.
Rail International's third quarter, and that's been a volume with approximately $45 million.
Turning to portfolio management.
Results were primarily driven by transaction at the wall choice and partners finance affiliates.
Following the refinancing EPS yell at me group of aircraft spare engine, which Brian will also cover in his remarks.
So with that I'd like to turn the call over to Brian.
Great. Thanks, Jerry good morning, everyone.
Sure. He said I want to provide some color on two items.
Had a large positive effect on our earnings in 2014.
Then we can go ahead and open up the line for your questions. So the first one concerns really north Americas that make sense.
The comedy the 2020, we expected that made this trend higher by about $13 million, that's a 5% increase versus 2019. So the main driver of the increase was the commercial insurers that we expected in the North American rail fleet.
Given the ongoing weakness in the market and this was pretty cool.
Commercial insurance renewal percentage on expiring leases that result in more cars being signed a new customer skewed to fully utilize it traditionally does matter more maintenance expenses, that's expired cars often into our maintenance network.
And then for new customers and orders are so as predicted we have seen the higher commercial churn.
We moved through 2020, and this trend has been exacerbated obviously by the fallout from Covance I see.
If you look at the third quarter, our renewal success and was 58.1%. That's the full 70 percentage points lower than a year ago. So however year to date that means expenses remain flat to 2019. So there's a number of reasons for this favorable performance most of them. Good what was perhaps a little bit.
Counterintuitive, but let me touch on those relevant reason.
So the first one as we move through 2020, we continue to become more successful in increasing the amount of repair was not in our own that were versus a third party shop. So you've heard us talk about this before we had this goal of moving a bunch makes this work as is practical into our own shops, that's where we believe the safety the cost the quality and the delivery metrics are all.
Superior So as an example of the progress Weve made if you look at the third quarter alone a week.
We set up 96% of our tank car were close to 90% of all of our cars run through the own network. So that's steadily increasing volumes doesn't drive down our unit repair costs in the owned that work, we're going to continue to push on this initiative.
Second one is increases the efficiency of our internal processes and our systems actually.
As they continue to improve our ability to make sure that type of work done on similar cars is consistent across the network and when we can charge for that works that we consistently bill and collect the proper amount no I've alluded to this before these initiatives and driving down our costs from last year or two obviously, we'll reach a plateau when we ever cheat fleet.
Deformity across the network, but we're not quite there yet.
Third a little unpredictable as always our railroad repairs they are lower than anticipated coming into 2020, but it appears that the railroads attention and manpower appears to be directed to other areas. So expenses down your year over year.
And lastly on the maintenance side and as I said, perhaps a bit counterintuitive is affecting some class a commercial churn in the fleet and cost.
Cost maintenance expenses decrease versus expectation, so actually contradicting what I, just said a little earlier, but there have been some cases, a 2020, where the market is weak enough that we've had we've made the economic decision to scrap older cars when customers returned them at least that rather than incurred maintenance expenses to repair the cars for a new.
Customer so why do we do that we simply did not see a lease on new lease they profitable enough to provide a return on it.
On an investment in maintenance. So this is most common to all the older cars and especially our boxcar fleet.
Which as you know is quite old relative to the rest of our fleet. So for example, coming into the year, we plan on maintenance expenses to be incurred on targeted older boxcars, because we anticipated being able to assign attract new leases.
Instead, the market weakened further due to covance and we ended up scrapping the cars when they came off lease so that reduced maintenance expenses versus expectations at 2020, but there's a downside to that and then it removes plant boxcar earnings from future years. So that's probably the best example of wherever reduced maintenance expenses can be a little misleading but never.
Yes, I'm really encouraged by our amazing performance and I think that lower spending trends will continue in the fourth quarter.
And actually beyond.
The second topic I wanted to quickly touch on there's a large gain on sale at our yeah. That's fair isn't leasing partnership with Rolls Royce.
We highlighted in the press release as Sheri said, no we frequently realize residual gains in this business, but it's it's been a variety of forms so older engines have been torn down and profitably sold parts.
That's maintenance reserves that member leases, you know that leases and taking income and we have sold hedges on at least a third parties as fast so.
So similar in North American rail you could manage customer exposure equipment exposure renewal schedule exposure you can optimize all that in the secondary market for engines is quite liquid.
The gain in the current quarter. So it was both large and unique I want to explain what it was and not let Matt otherwise difficult operating environment in that business. So as we said in the past that RPF. A portfolio consists both of engines that are at least directly the airline customers around the world, but also agents that are at least back to rolls Royce.
Generally so rules to use them in support of their total care program and then.
In this particular instance, there was a large group of at least the Rolls Royce for approximately $300 million that was coming due for refinancing in 2020 and 2021. So obviously refinancing rates have increased pretty dramatically for air related businesses. So in this case it made sense to restructure the current leased rolls Royce into a new law.
In terms of these.
So many of these engines with the leases attached to a third party investors and then use the proceeds to pay down the vast majority of the related debt, rather the refinancing refinancing and higher credit spreads. So once again that address a number of goals for the JV, we reached reduced refinancing risk or do some equipment rest even lowered our.
Exposure to Rolls Royce from the JV so.
It does I realized on the sale generated a gain of 68 cents per diluted share in the quarter.
It was actually outstanding value, probably more reflective of accrete over the environment. So wanted to call it out because a similar transaction on the edge as leases roll unlikely to happen in the near future, but it does reflect the value embedded in the engine portfolio longer term. So I hope that helps explain to us the standout items in the third quarter earnings.
Operator, we can go ahead and open it up to questions though.
Thank you.
He would like to ask a question you May press star one on your telephone keypad. If you are using a speakerphone. Please ensure your mute function is turned off to allow your signal to reach our equipment. If at any point you would like to rise yourself from the queue. You May Press Star two again, please press star one no good question well.
As for a moment hello, everyone the opportunity to queue for questions.
We'll take our first question from Allison Poliniak of Wells Fargo.
Hi, guys good morning.
I just want to go to your comment on in amazing that the maintenance work into year end shops, you know I know that something nice gtx isn't working on I'm fairly successfully.
But as you look at the environment today, just trying to understand the dynamics you know is that partly a function of the industry Utilizations. Those cars, that's giving you a little bit more I guess flexibility to bring them into house first is out in the field or is this you name. It I guess is that relevant at this point just any thoughts there.
No I think it's it's been an initiative of ours, you know going back years. It was about 50 50 between the third party network and the owned network just made more sense to us to leverage our investment existing investments and maintenance facilities and bring as much as we could in historically most the vast majority of tank that I've done in the all that work.
Now, we're doing a larger percentage of all repairs and they own networks I think no, it's where our initiative to move repairs and to the old you know, we do believe the safety quality delivery cost and all better and obviously, we drive down our cost.
I will say one of the things that actually increased maintenance expenses over what we expected. This year, there's a lot of ins and outs, but we did move a little more work into the contract network earlier in the year than we planned on just to diversify.
That work in case, we had a cold bit outbreaks and severe enough to close down a facility for an extended period of time. So actually we could have done more internally, if we hadn't done that conscious decisions, but it is absolutely an initiative of ours and Alison just just to add to that I'm actually the environment makes it more challenging to get to get.
The cars and because you have the churn that Brian talked about C., you actually have more cars that need to get done.
Got it interesting Okay, and then just I know one quarter doesn't make a trend, but there there would be no success rate dropped a little bit from last quarter was that just due.
Basis, I'm not cars were coming in or you know something else going on there.
Yep. So it's certainly is reflective of a challenging environment, but there is one item to call out there. So as you noted the a renewal success percentage was what's 58%.
And it had been 70% in each of the first two quarters up part of that was driven by the Cobi a bankruptcy.
So we expect ultimately to get about 500 cars back due to that and that will have three market due to that bankruptcy have probably gotten around threed 300 back year to date without that that renewal success percentage would have been more in the low to mid sixtys, which isn't too far off from long term averages.
But it's a certainly below the last couple of years, which had been in the low eightys. It's important to note that about half the cars that we got back were immediately remarketed to other customers or the quarterly renewal success can move around quarter to quarter as you noted a mix.
Because it can be influenced by.
A couple of larger contracts. However, in general I would expect that the long term average renewal success percentage, which is sort of in the 65% to 70% range would probably be a better guide going forward and then the 80% we've been at the last couple of years.
Got it. Thank you that was helpful.
Thank you and we will take our next question from Matt O'connor of Cowen.
Good morning, guys. Thank you I wanted to make sure I understand that the JV transaction Oh, So Brian I think did you say that all of the engines that were sold were.
Rolls Royce engines or did they include a certain percentage that was a third party customers I know half a third party customers. I think you mentioned on the last call a war on pay than deferrals because of that kind of environment. So I was just wondering if there were any third party customers.
And if so if any of those were the ones that are payment default.
No, they're all Rolls Royce engine and they were all at least Rolls Royce.
Yeah, Matt just just Matt I, just want to be sure you understand everything in the large transaction that Brian talked about was on lease to Rolls Royce there was a there were other remarketing and residual realization activity that that.
We're different sources.
Got it and did you guys.
Given the number of engines that were actually involved in this transaction just trying to gauge the future impact on earnings.
On earnings.
No we did not provide that.
Is there any can you help us try to gauge what the impact on earnings could be you know going forward from that from the sale.
Yeah that's.
Right.
That's not something we have right now, but let us look into it and see what we can provide.
Got it. Thank you and then another question on the on a rail North America.
First of all do you guys have a similar number of renewals coming up in Twentytwenty one to Twentytwenty.
And if so and if lease rates keep making you know modest sequential improvements like they did didnt.
Threeq you could we actually see a revenue per active card North America, you know hold steady next year or even improved slightly.
Yeah, Matt you know that we we generally provide that information at our first call.
First quarter earnings call for the for the fourth quarter earnings call for the following year, but in general Directionally, given what we've been doing with lease terms recently, it's fair to say, we'll probably have more expirations more renewal opportunities next year than we did this year and likewise directionally.
The the expiring rate challenge, probably will be a little bit easier next year than this year.
That's helpful. Tom and then you know just the last one I'd love to get your thoughts on the sustainability of the sequential industry fleet utilization.
Utilization improvement I think we've seen three consecutive improvements over the last three months so how much.
How much of that you think is attributable to intermodal versus grain or or other things that is and what it all you know what it what it means to you guys.
Yeah, so coming into the year, we anticipated a a slow and gradual recovery as far as lease rates go and although car loadings were up 11% versus Q2, there were still down 12% versus Q3 2019.
However on the supply side, we are seeding seen some builders retrench and we are seeing some scrapping activity increase in fact, we are not north American fleet declined slightly for the most recent or data.
For the second straight quarter and the industry metrics on I don't cars in storage declined by 75000 cars. So those are all positive signs. However, there are still too many idle cars in the industry. So even though we saw you know a flat to marginally improve proving lease rates in the quarter, we still have a long way to go to get.
Back to those long term averages so absent an unanticipated demand catalyst like we saw with crude oil in the last the up market, we anticipate it'll probably take several quarters before the cyclone supply correction mechanisms can meaningfully increasingly strict.
So several quarters of Ah you know rail traffic improvements around traffic going into like Directionally celebrate again growing potentially next year.
Yeah. So so again, it's it's the hopefully the beginning of a trend, but it but it's early innings. So we'll have to see how that develops.
Great. Thanks very much.
Thank you and we will take our next question from Justin long of Stephens.
Thanks, and good morning, Brad.
And some of the comments you provided earlier around maintenance where were helpful. I wanted to see if we could get a little bit more color on what you're expecting going forward for North American maintenance expenses. I think you said that some of the improvements should be sustainable ended the fourth quarter and going for.
Forward does that mean that you know maintenance expense can remain kind of flattish sequentially next quarter and into next year or is there a little bit more color you can provide around that order of magnitude.
Yeah, our expectation is flat to down.
That trend continue at least for the short term, but I don't want to project too far out because so much of it as I did on commercial success, but looking to next quarter I was I was thinking about this trend continues.
Okay. That's helpful. And then next year, just with some of the tank car recertification work that could be coming up.
Could be coming out that in 2021, and do you think something kind of flattish for maintenance expenses, it's possible relative to 2020 or is there a ballpark you can give us on that.
Well give it to you you know in January but I will say, we pulled forward a lot of that compliance work on one of the things are.
Got it thanks certification into last year and this year. So were we even doubt that work flow more or so I don't expect a big increase and I would hope this trend continues.
Okay, that's helpful and following.
Following up on that gain in our Rps.
Yeah, Tom you mentioned everybody.
Some are there kind of remarketing and residual gain in the quarter could you provide what that number wise and then I don't know if you have that pre tax number for that the larger gain but that would be helpful. As well, if we kind of put together there's different pieces.
Yeah, Yeah. So I do have that so maybe what I'll give you a justin it's both a year to date and third quarter numbers, which hopefully will be helpful. So year to year to date for the JV.
Income from operations that were recognized on that line item were about $30 million in gains were about 63 million, which Adam together you get the 93 that you see there for the third quarter gains in operations were 10.
Yeah, you can operations earnings was 10 and the gains was 37.
Those are all a pretax so for a total of 47. So all of that 37 in gains about 32 million related to the item that Brian talked about being the 24 after tax.
Right so relative to.
It will be modest across everything else and just to come back to matts question.
Probably no reason, we can't tell you that it was 18 engines that were.
Were sold.
Okay and on those 18 engines anything.
We should consider in terms of like a disproportionate impact on revenue or if we look at those engines or the percentage of the total engine portfolio is that a good way to kind of ball park the impact going forward.
Yeah that probably wont work too well because as Brian noted they were older engines that were it was it was good to to rebalance the portfolio with though so I would not stay there a representative cross section okay.
Okay.
Hi, very helpful and last question I had was on the acquisition pipeline, obviously, we've seen some extreme volatility in both directions and in the economy and rail volumes et cetera, but as the market has started to bounce back here in the third quarter have you seen.
No more acquisition targets come to market and maybe you could speak to that valuation multiples on deals and if you're seeing a pickup.
No we really haven't seen anything significant so there is not much to talk about there I still think there's opportunities there salvation no front I want to be a broken record, but it's just too many investments made by new players that aggressive players that are economic under water. So I still think it will oh, but theres really been nothings never again.
I mean, you haven't seen anything change hands are probably says or element transaction.
But really nothing to report there.
Okay.
EBITDA dad I appreciate the time.
[laughter].
Thank you we will take our next question from Bascome majors Osisko Honda.
[noise], yeah going back to the Rolls JV can you give us an update on.
Perhaps the percent of revenue that's being deferred right now just trying to think of the delta between revenue recognized in cash flow and if that has shifted they need.
And the last you know two three.
234 months.
Yep. So so customer deferral requests have really continued to slow and the numbers are similar to what we've talked about previously to date about half of the Jvs airline customers have requested deferrals or the JV is selectively granting those deferrals on a case by case basis the request again as.
A reminder, typically three to six months rent deferral or some have been as long as 12 months.
And then as far as a percent of revenue the request represent a little over 10% of annual revenue.
Thank you and does this outcome with you know perhaps older engines that were closer to the end of life, but.
A fairly significant gains for for just 18 of them does this give you some confidence that you can share with us that you know empyrean issues or perhaps overblown by some investors in that portfolio as you look to your in testing.
Yeah. So so you know what I can tell you is there has been no material impairments. So far this year. The jvs impairment analysis consist of cash flow analysis for each entity type and independent appraisals.
As you know the accounting rules require impairment to be taken whenever the testing indicates in Paramount yes.
Yeah. So.
A little color around that transaction. So that's started very early in the year.
I think the values were probably more reflective of the free cold environment. So there.
So there's no question airline and engines values have come down.
Oh, Yeah, we still think were strong long term, but I you know I don't know if that transaction is a de lever beautiful at those things.
Thank you for the the candid color there.
Two more on North American rail.
You talked a little bit.
[noise], having more renewal opportunities next year and hopefully with that.
With a more moderate expiring rate to comp against can you just give us.
A little finer detail on the cadence of the expiring or your portfolio as it sits today with you know understanding on oriented that may change, depending on transactions et cetera.
Yeah, two to a degree Bascome you answered your own question the challenge for us on providing that too far in advance as it does change which is why we went with who will provide the the directional guidance that we would expect it to be higher than this year, but it's really hard to say that.
As transactions are constantly being done.
Beating your expiring rate next year will be higher than the rate this year.
Yeah, I'm, sorry, I thought you were talking about the number of explorations no I understood I was actually asking about both so any color you could give on that guy so.
Yeah, I and and so opposite directions, we expect more expirations more renewal opportunities next year than this year because of the short lease term, but we're as we get further and further away from the up market, we expect to be compared or rate the rate, it's expiring off of.
To be lower next year than this year.
Thank you last one back to M&A focused on North America, but maybe not exclusive to defeat I've seen different comments for another region, but [noise].
Understanding that say I guess it sounds like from your earlier response to any question that the motivated sellers really aren't showing up yet and it's understandable. Some of the reasons spots can you help us understand maybe your process like when you're kicking the tires on one of these deals like financially.
What is your objective is it.
Do you know how much can this improve our are we you know isn't an earnings accretion estimate just if we could get like maybe a peek into your process and what a quote unquote. Good deal. We'll do for your financials I think that would help us understand kind of where you guys had sorry. Thank you.
I mean that could be a disappointing is right really accounting earnings as the last thing we look at we Uh huh.
I have a different risk adjusted return hurdle rate return required for every geography every business I've every car type every business.
It will run through our projections and will totally focused on shareholder value added we expressed that GHS, we looked at as we call ROI. So its a return based on original investment.
It's a correlated with SCB shareholder value added.
Finally earnings fall out honestly, we're not going to let that stop us from doing it economically accretive transaction and the reason I say that it's important to note that any kinda young portfolio of railcar leases.
Generally, it's not very accretive from an accounting perspective or.
Early in the life. So you just cant focus on that but it materialize overtime.
Oh, yes, it's there's nothing really to report North America I think I think there are you need a motivated seller right I can't make somebody so we can certainly make our interest snow and and I think the market knows about our interest in acquiring portfolios at attractive prices, but I think people have to come to grips with the value of their fleets, especially the way so.
Or both.
In this industry in Europe, it's a little different story I think most of the growth I don't think most of the growth has been organic.
Yeah.
I'm a little disappointed over the last few years that we haven't seen portfolio acquisition opportunities in Europe. They just haven't materialized in a couple of years.
There is there's a couple of things, though right now the European teams working to develop a more liquid secondary market in Europe similar to one North America just hasn't been there today, we did a small fleet card acquisition earlier in the year, but that market is going to take some time to develop.
The second possibility in Europe is is SNCF, the French national railroad and they sell all or part of it may have on that.
That's been discussed in the market for years, but just in the last few days is that stories in the press, saying that is that the SNC affords made its decision.
So all of our partner May have a so we said, though in the near future. If that's a possibility or not so looking at North America Europe, that's the only thing being talked about right now.
Thank you very much.
Thank you and we'll take our next question from Justin Bergner of Tiv research.
Hi, Good morning, Bryan Good morning, Tom.
Morning, Bonnie.
Just.
To start off I guess you know.
You know before rules announced their major set of transactions to raise equity and debt capital one might have expected that you know GE a T X could have been a source of liquidity for them somehow through changing.
Changing.
ER ownership or others for a financial transaction to the JV is that.
Is that.
A possibility for G.H.T.X. going forward to increase.
The increase its exposure to the.
Our P.F. JV and help provide goals liquidity in the process or is that sort of now no longer relevant given rules announced transactions.
Well I definitely think the liquidity pressures on them right. They upsize the bond deal I think Justin the 2 billion from 1 billion. They did the rights offering I think it's all part of that.
It's a 5 billion year old plans to raise raise liquidity. So it seems like they've got through that at least the market has responded.
Has responded positively to it so.
You know given its long history of impressive growth and profitability and with a robust robust outlook for growth post coated and engine.
No I look forward to continuing to invest in this business, but for right now focused on being the best partner I tend to Rolls Royce So I wouldn't rule it out but you know honestly right now given engine values I think that's unlikely that rolls is one exit that investment because I think long term, it's got a very attractive outlook.
So I'm just focused on being the best partner I'm here.
Okay understood that makes sense moving on to the topic of the maintenance expense I think he said that the overall maintenance was done 90% through your own shops. This quarter, just big picture you know what changed over the last few years.
That has made the economics.
The more favorable to bring in house.
Non tank car maintenance when before hand. It was outsourced was this always an opportunity just took a while to do it or was there something that changed instead, the economics to make this a better opportunity in house.
Yeah, Justin it wasn't so much or a change in economics, because doing the incremental car in your own shop is always is a better things and then spending all that money or externally for a.
An outside party, but we put some investment into our shops. So that they can handle more capacity I'm done things like up putting track down Oh for storage and movement of the cars I'm, increasing our cleaning and finishing capabilities. So we've put some money into the shops to be able to take or two.
Due to increase their capacity to take on cars.
Okay, and that 90% number them and that's obviously extraordinarily high if I heard it correctly is that sort of a sustainable benchmark.
Or was that enhanced by just you know the week.
Operating utilization environment for the major wells.
Yeah. So so again our target has for a while then to go from the 75% or so of tank and specialty freight maintenance up to that 90% number I'm. So so that certainly remains our target and as we mentioned I wouldn't characterize the environment that we've been in as.
Particularly easy to get cars into the shop, because we talked about the fact that when the renewal success percentage is lower.
You see a little more churn in the feet fleet more cars have to visit the facilities and then you know there also been some some challenges related to co bid where occasionally we had to close the shop for a day or two to do some deep cleaning or other activities like that so so it really is a this has been a.
Challenging environment to to get cars through yeah.
Pile on there and say that's something we haven't talked about is I think you know what's a rough estimate of between direct cleaning between paying employees that are up for a team and a variety of other things you've got around coal that I mean, we estimate $3 million to $5 million of expenses. This year. So it really does put in perspective, how impressive.
This performance is year to date.
To do all this in the face of coated.
Got it yeah. Good job there just to wrap up two quick ones did you repurchase shares this quarter. If so how much and then secondly can you set long term goals on sort of the desired size of your India fleet and if so are you willing to share with investors at this point.
So so we did not purchase any shares this quarter, we still have 150 million on our existing authorization and I'll turn it over to Brian for India.
Yeah, well in India.
[noise] had very little growth sector quite effect I think we had zero deliveries in the second quarter like 125 in the third.
Probably deliver half of what we expected in 2020 coming into the year.
But you know to the extent that co, but it doesn't create a major shutdown or it could end up just big up lift in their growth.
You know for the last and ongoing 12 to 18 months.
Longer term.
Still got the same growth prospects. It is a great market covenant and Cove, and hopefully as it should be a great market coming out so looking out.
Four to five years, there's no reason that we could friends is double the size of the fleet.
Great. Thank you for taking my question.
Thank you we will now take your questions and Barry Haimes of Sage asset management.
Thanks, very much had two questions. One is you mentioned that the.
The rate on expiring leases next year should be lower than what we saw this year. Since that's kind of a known number can you give us a little bit more help on magnitude of that and I had one other one.
Yeah. So.
Fortunately, we really can't because again, the or the mix of cars coming off is constantly changing as we do things like have remarketing activity. Some of the cars that go into the shop you have the scrap versus repair decision you. There's just a lot of things that make it hard to.
To quantify that so we really need to just stick with the directional guidance.
Okay. Thanks, and then the other question just following up on the fact that.
At least race, where you know flat sequentially. So maybe the market stabilizing some but if we were to look at.
Like car type if your major car types in terms of the van versus what's in storage you know what what are the car types that where it maybe just a little less in storage and you might see a rates from a little sooner versus a you know which of the car types, where you kind of have to slog through.
A bunch of supply and storage first before you know you get that improvement. Thanks.
Yep, so relative to last quarter. The car type that saw the greatest increase was we're probably grain cars.
You expectation of a good harvest and and so that that really was the car types that I would call out for versus last quarter. When you want to talk about versus sort of long term norms. The car types that have performed the best route have been general service tank car types that are not serving the energy market.
Okay. Thanks, Okay.
Thank you well take our last question from Steve I had a city and company.
Hi, Good morning, Thanks fitting me in.
Great.
Hello, you can hear me [laughter] weaken region area. Okay. Good yeah. So just on the sales.
The sale the engines do you see with the the dollar value the sale was.
Uh huh.
Which we did not.
And you have that by any chance.
I don't have it in front of me.
Okay.
And I think there.
I think there. So you said there was 18 engines sold and there's approximately.
Foreign and 78 and the portfolio is that correct.
Correct.
Third of that okay. Okay yeah.
All right and then just on the <unk>, maybe just you know if you will get remarketing.
Gains and things like that that have happened and where maybe railcar values are now versus several years ago has there been any you know.
I mean is there.
I think going forward do you see your ability to generate those gains maybe somewhat suppressed versus prior time periods. I mean, I think if I look back you know at some point you were doing you know kind of north of.
Almost $100 million in 2015 that was obviously a very strong year, but you know 20 do you think was 73 million.
I mean is that.
Are we more likely in this neighborhood now in the maybe 50 to 60 range do you think or.
Just given what the market's doing.
How do you think about that.
Yeah. So so as you know from from following us for a while that the gains on asset sales really can move around quite a bit quarter to quarter and year to year and it. It's it's really hard to say what they'll be for any given time period as you know that the way that.
We look at cars that we identify for that is really a portfolio management activity. We're looking for car types that we you know we might be a little long on either because of where we think the markets go in or the expiration profile or the just the car type for the credit. So that's really how we identify cars that were.
To put into a sales package and calling exactly how bad that gain will move over time as is pretty and precise.
Okay. So it's so opportunistic I mean, the best example would be we sold.
I don't know, how many but a lot of small cube covered hoppers back a few years ago for the current crisis.
The ability to do that disappears pretty quickly. So it's so depending on the commercial environment, but we it's very opportunistic on our part let's get the managed customer exposure commodity exposure equivalent exposure. So.
So that can change in a hurry.
How receptive the market is.
Okay that makes sense.
Helpful and then.
And then.
Just on the.
The.
Oh, sorry [laughter] within.
Within.
The real North America side, I think you said lease rates are up sequentially.
And but I didn't did you kinda talk about where they were versus kind of the lease rate, maybe kind of coming into the year kind of in the average times or year over year.
Yeah. So.
Versus versus a year ago, most a tank car types are probably down around.
Oh, 25% or so of freight cars have been challenged longer. So there so they're down last because they've been checked in a challenging environment longer they're probably down around most car types around 10%.
Okay, all right, Thanks, and then eat it.
If there was any you know within the the sale.
The engines at roles at the JV was there any do you have.
Dividend paid on the.
Any cash proceeds reinvested or.
How is that dealt with.
Yeah, the cash from them was used to pay down the associated debt.
Okay. Okay. So there's no kind of what's the reaction to that.
Correct, Okay, all right that's it from me thank you.
Thank you and we do have a follow up question from Justin long with Stephens.
Stevens.
Thanks for taking the follow up Tom just had a couple of things I wanted to clear up on that on the model going forward for EPS DNA do you feel like the third quarter is that a good run rate for fourth quarter and beyond and then also wanted to get any thoughts you had around that the tax rate going forward.
<unk>.
Yep, So is as far as as gene a you know we came into the year expecting it to be around a $180 million. If you account for the S.C. sale through three quarters were at a 126. So if you look at it on a run rate basis, we would finish up around $10 million to $15 million below.
Oh that original expectation and I think that's probably a reasonable way to think about it of course, you know there's things that can make that move around a bit but that's probably a.
Regional with reasonable way to look at it as far as the effective tax rate, we would expect that to end the year somewhere around 29, 30%.
Okay. Thanks, I'll leave it at that I appreciate the time.
Thank you and we have one other follow up question from Justin Bergner as TV screens.
Thanks again.
I just wanted to make sure I heard you that industry participants from your understanding or moving to sort of scrapping more cars because it looks like.
She ATX didn't scrap any of its cars and that's for the year to date based on [noise].
<unk> line items.
<unk>.
Maybe just any additional comments there.
Yeah. So.
First of all as far as GHX on the last page of the press release, we provide the information on the cars, we scrapped in the quarter.
Which were 623 cars this quarter.
As far as the industry goes what we would anticipate is with a a little higher scrap price on scrap prices are up over the last couple of months, where they you know there there were around 245, now which is pretty close to the long term average they had been more in the 200 range as those go.
As those go up when people like us make our scrap versus repair decisions. It makes it relatively more likely you're going to scrap when you compare those proceeds to what you can get from repairing the car. So our expectation would be in general if if scrap prices.
Stay where they are or increase you would see a little more scrapping activity in the industry.
Okay that makes sense. It was just that it's just that you didn't generate any gains from that activity, but you still scrapped a good number of cars.
Correct, we scrapped a little over 600.
Okay. Thank you.
Thank you speakers at this time, we have no further questions.
Yeah, I like to thank everyone for right for their participation on the call. This morning. Please contact me with any follow up questions. Thank you.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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