Q4 2020 Greenbrier Companies Inc Earnings Call
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Welcome and thank you for standing by to the Greenbrier companies fourth quarter and fiscal year end 2020 earnings conference call.
In today's presentation, we will conduct a question and answer session.
Analysts should limit themselves to only two questions until that time, all lines will be in a listen only mode at the recall.
At the request of the Greenbrier 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 Roberts, Vice President and Treasurer Mr., Robert you may begin.
That sounds great.
Your life you May go ahead.
Thank you Joe and good morning, everyone sorry for the delayed start we are having some technical difficulties with our provider, but such as life and the time of Covanta and everything else it seems to be going on.
Welcome to our fourth quarter and fiscal 2020 conference call on today's call I'm joined by Greenbriers, Chairman and CEO Bill Firming.
Lorie, Tekorius, President and Chief operating Officer, and Adrian Downs, Senior Vice President and Chief Financial Officer.
They will provide an update on greenbriers performance in the quarter and year end, our near term priorities.
Following our introductory remarks, we will open up the call for questions. In addition to the press.
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 matter.
Matters discussed on today's conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 through.
Throughout our discussion today, we will describe some of the important factors that could cause greenbriers actual results and beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier.
And with that I will pass it off to bill.
Thank you Justin and good morning.
I just start out by saying the obvious that we're living in very interesting times.
And point out the Green bar brings a 40 year track record into 2020 and this is not the first time we've.
We've confronted unused.
Unusual times Weve.
Weve design flexibility into our businesses by growing liquidity to 1 billion since March.
And green grass and time tested approach to market uncertainty.
Green Briar management team isn't deployed.
Deploying that and have deployed that proven strategy.
During the past six months.
Green Briar launch a rapid response to cope with 19.
We dramatically improved liquidity, including controlling costs appropriate to current business conditions. These.
These actions position the company well for the current market.
And we have a strong capability to meet demand as it resumes overtime.
We're very grateful for our employees dedicated.
Continued dedication and also that of our customers suppliers and other constituencies.
We've all been impacted by the pandemic, which has created not just concerns about personal health and safety, but.
But also questions about our collective future.
Social isolation climate concerns wildfires in the west.
And unrest over social injustice in an election year all have.
Been put together in this soup, which has created a malaise we have to fight every day.
Greenberg global workforce has been working.
Under very challenging conditions.
We care about our employees, our customers and our communities.
We launched a number of important programs during the year related to cold in 19 safety community outreach diversity and inclusion including environmental stewardship.
These are all part of our effort to address the uncertainty.
And to bring stability.
And optimism for the future.
Unfortunately, COVID-19 still has a grip on our nation and on much of the world.
This may continue for some time green.
Greenberg experienced with COVID-19, as follow the pattern seen throughout the U.S. and the world.
With declining cases and.
More recently and optimism during the summer months and a more recent upward spike.
We continue to monitor the health and wellbeing of our global workforce, we have active protocols in place for potential COVID-19 exposures.
And.
Clusters to be reported an active buying immediately as they.
As they may appear.
Each of our manufacturing plants is meeting or exceeding CDC.
Requirements and recommendations as we protect our employees operating as an essential industry, while maintaining our.
Our other business activities our requests.
Our requirements are being forced enforced by management with a high degree of discipline.
Despite high community spread in some areas and in fact in many areas, where we operate around the world only a small percentage of our total global workforce has tested positively.
It was relatively good news and it's due in part.
To our policy of rapid response strong health policies.
Designed to prevent outbreaks and to address them quickly if they occurred within our factories.
Our workforce exceeded 17000 at the end of 2019.
And reduced to 15000 employees in early March and after Rightsizing stands at just over 10500 people today.
Throughout that period and since March.
We've had an average of about 13500 employees.
I am saddened to report for families have been affected by.
By fatalities, among our worst workforce, but on that population, we have the blessing of only having had for three employees residing in Mexico.
And one in Romania died after testing positive for the virus three out of four.
Had preexisting conditions, but one was a healthy person in his forty's.
I guess, Steve Red recast passed away earlier this month in August screen. We're also last October Octavio Perez.
John Lorenzo Gonzales.
And Constantine Deno.
Each of them is in our thoughts and.
And we are eating your families a remembrance of them and who is a reminder, about the need for all of us to remain diligent and vigilant with their own health and safety practices to practice safe distancing wear masks and to be alert to these this medical crisis everywhere we go.
During the last earnings call I discussed the core values of sheet Green bar over the last 40 years as well as our ongoing commitment to support positive change and.
In September we launched we launched our formal ideal commitment, which stands for inclusion diversity equity access and leadership others.
Other programs include enhanced environmental social and governance DSG program and report.
Greenbriers approach to BSG involves a number of steps to promote environmental responsibility. These include.
These include enterprise wide reporting and green Briar related greenhouse gas emissions tracking air emissions monitoring and conserving water consumption.
And concern and monitoring the cleanliness of water run up.
We will continue to drive practices that serve our employees and the communities where we operate.
And in the environment.
To learn more about our work in the full U.S.G. report released today on our website.
Turning to operations and as reflected in the press release, our results for the fiscal year Unsurprisingly came in below what we had expected at the beginning of the year.
Given the circumstances, maintaining greenbriers profitability during the second half of our fiscal year is a considerable accomplishment.
Recall that our industry was heading into a weaker period prior to the pandemic.
Suffering from the effects of railroad operating initiatives like PSR, lower oil prices and ate sector, a diminishing of demand in a way this was a blessing but.
Because we already had begun prior to the pandemic to reduce our production capacity and to right size, our workforces and overhead costs.
Cut capital and so on it at this.
At the start of our fiscal year.
When the potential impact of the pandemic became.
Apparent in March we took a series of decisive and prompts measures to protect the enterprise and ensure a green briar could obtain the strongest possible financial position.
Building, a flexible capital based whether an economic crisis of unknown severity and duration was our first financial priority. We set an ambitious liquidity target of $1 billion, which has been achieved and exceeded.
We'll continue to monitor that target from quarter to quarter.
We significantly reduced operating expenses and capital expenditures, we also temporarily restructured several of our key relationships with partners and suppliers during code 19 to create material financial benefits for Green Briar during the crisis and also to assure them of our long term commitment to our business.
Relationships.
Finally.
Rationalize manufacturing capacity across our global production networks most significantly.
In North America here.
Here in Portland for example, we closed our railcar facility, while still operating our marine business at Gunderson.
In fiscal 2020, we suspended operations on 13 rail production lines and we reduced our total employment base as referenced earlier by more than 6500 people.
Supporting all this we delivered positive operating cash flow of $405 million.
In the last two quarters of the year.
Which is a significant contribution to Greenberg overall financial health.
During the second half of fiscal 2020, we completed several commercial transactions at a time when transactions were scarce.
We didn't creative things with technology.
To adapt.
I want to commend, our commercial engineering and manufacturing teams on a successful pivot to engage customers with nearly 50 virtual sample railcar events.
Carried out this year.
These events enable green bar to direct to directly connect with customers to meet their needs despite travel restrictions.
North American orders for us were lower in the quarter compared to Q3, while still respectable under the circumstances. However.
However, our international presence again complemented north American performance orders.
Orders by units were roughly balanced between North American and European customers with several hundred units in Brazil.
We've done well maintaining backlog in strength during the year in the quarter, our $2.4 billion multiyear manufacturing backlog railcar units continues as a source of cash flow and stability in more challenging times.
More important than the dollar amount of our backlog is the type of customer who supports it.
Over 80, 90% of our North American customers have an investment grade credit rating. These customers provide our manufacturing facilities with a base load of multiyear deliveries that enables continuous operations and the readiness.
Gail quickly as demand improves and resumes.
The real sector has experienced a far reaching impacts of code 19, as all industries have it isn't.
It is an important and strategic.
Michael we strategic industry to all economies worldwide.
We expect this recovery will be a leading indicator of the broader economic recovery after code 19.
Subject of course.
Through the course of the pandemic, we believe our industry can turn the corner in the second half of calendar 2021.
And we also believe that a snap back and come very suddenly.
This would positively impact our performance in our fourth fiscal quarter.
And entering into fiscal 2022.
Economic uncertainty persist across all our end markets, but there are pockets of recovery in longer term trends are favorable for example, there were two significant policy develops developments in Europe within the last month.
First you plant Parliament vote.
Voted to accelerate greenhouse gas reduction targets and the European Commission and you transport Minister, saying, the Berlin declaration to accelerate the growth of rail freight.
Their strong reasons for these actions as rail freight consumes.
One third the amount of carbon as trucking. So these movements are likely to be replicated around the world and indeed only.
Last few days, Japan has made major movements to follow suit.
Longer term, we will keep a close eye on what clean energy.
Will mean to our customers to the our industry and specifically to our business.
Greenberg remains in conclusion very healthy despite the market environment, our leadership positions in the core markets in North America, Europe, and Brazil remains unchanged.
In those three markets, we've achieved material scale and market presence presence on three continents, where square.
We're squarely focused on managing our business to generate cash flow to maintain a strong liquidity position regardless of market conditions.
We are confident in our ability to do this successfully we have a seasoned management team who have been through multiple cycles before as we.
As we say out west this is not our first rodeo.
We will be ready to respond when the market recovers when that occurs we will be a leaner company with reduced costs and improved efficiencies.
We probably maintain the strongest and most efficient use located freight railcar manufacturing footprint.
We are an American company are.
Our powerful U.S. presence balanced with our international locations and interconnected supply chains are assets that may Greenberg unique.
Now over to Laurie Laurie.
Thank you Bill and good morning, everyone.
Greenberg performed well operationally against the backdrop of continued industry weakness, a broader economic downturn and the global pandemic I'm proud.
Im proud of what we've accomplished and more importantly, how the entire company shifted so quickly operating decisively and an ever evolving environment.
I'll provide a brief update on the impact of coal that on our operations our results for the quarter and year and share some of our expectations for fiscal 2021.
Oncogenic, we continue to execute on our COVID-19 response plan.
During employee safety and maintaining our essential status in all countries, where we operate our top priorities.
Overall, we've experienced a little infection rate globally in the strict adherence to protocols and rapid response to have outbreaks.
As Bill mentioned, we have unfortunately had four employees that passed away testing cost from call. It in the last few months our thoughts.
Our thoughts and prayers are with their family and friends.
It is imperative that we not become complacent and continue to focus on employee health and safety and that our rapid response team continued to perform at a high level to mitigate the potential for any closer to form within our facilities.
We are seeing rising rates impacts and in all of our communities and need to maintain our focus to navigate the months ahead until some semblance of normalcy return.
Moving on to operations.
We delivered 5100 units in the quarter, including this indication of 900 units.
We received orders for 2800 units valued at $250 million, resulting in an ending backlog at 24600 units valued at 2.4 million.
Orders originating from international sources accounted for over 60% of the activity in the quarter.
Our North American manufacturing group navigated the shifting landscape well.
We continue to build railcars safely and efficiently, while making necessary protocols to protect our employees.
Rationalization of capacity continued with a curtailment of two additional production lines during this quarter.
Greenberger performed well and continues to improve operational trajectory that began in 2019.
Order activity in Europe continues to show strength.
Titan with what Bill was talking about and accounted for over 50% of orders in the quarter.
In Brazil order activity starting to improve modestly although the country continues to struggle through the pandemic.
An economic recovery seems to be beginning, but we've learned the dynamics of recoveries are unpredictable.
Our wheels repair parts operations were impacted by lower traffic volumes.
The team did an excellent job of making operational adjustments to control costs and navigate the lower demand environment, while maintaining the ability to run.
Quickly when activity levels improve.
I'd like to point out that on an annual basis for this segment revenue decreased 27% compared to 2019, even as profitability increases.
This exemplifies a significant operational improvements that have occurred, particularly in our repair business.
The leasing and services group performed well in the quarter despite headwinds today.
The management services team continues to grow the business with new customers and implementations occurring steadily throughout 2012.
The lease syndication capital markets team had another great quarter generating proceeds of over $115 million on syndication of 900 units.
The financial markets continue to be volatile and credit sensitive, but these results are a testament to the strength of our syndication model and Investor network.
Now looking forward to that.
Serving the near and longer term financial health of the company is in Paris.
We generated strong cash flow over the last six months.
Taking numerous cost reduction steps.
We are not complacent about these initiatives and will continue to work hard to ensure our strong liquidity and market leading positions.
Planned capital expenditures and manufacturing and wheels repair part will be around $35 million in 2021.
A level that support safety and required maintenance.
This 20 plus million dollar stepped down from our fiscal 2020 levels combined with the 50 million reduction in 2020 Capex from expectations at the beginning of that here in the 70 plus million benefit to our liquidity.
Leasing and services Capex is primarily discretionary and will be.
It will be driven by the underlying economics, and the leasing activity and opportunities as they present themselves.
And the second half of 2020, we reduced selling and administrative expenses $25 million.
In 2021, we expect an additional $30 million reduction.
Annual rate of $170 million to $175 million.
This equates to an overall 55 million reduction in spending and benefit to liquidity.
We'll continue to flex, our north American manufacturing footprint have conditions evolve.
Throughout 2020.
13 production lines and.
And reduced production capacity by almost 40%.
As we enter 2021 Greenberg North American manufacturing capacity is right sized to weather the current downturn, while ensuring the capability of ramping up quickly and efficiently.
As conditions improve.
Looking forward, we are navigating a unique.
Moving dynamic that brings considerable uncertainty.
We have an industry downturn, that's been exacerbated by the pandemic.
Rising infection rates and all the communities and countries, where we operate and a national election with broad ratification.
These factors will likely have a negative sequential impact our results in the first half of fiscal 2021.
We are optimistic about a recovery beginning sometime in calendar 2021, which we expect to benefit our fiscal 2022.
We've taken the necessary steps to ensure greenberg will exit the pandemic economy, a stronger and leaner organization, but that doesn't mean it will be an easy next few quarters.
As you heard from Bell, we're working to ensure profitability for the full year and still see gross margins in the low double to high single digit range, albeit on fewer deliveries in 2021.
But that being said, we're not providing financial guidance beyond the metrics discussed today.
As we gain better visibility or recovery occurs more quickly than anticipated, we will provide incremental expectations and will continue to be.
We will continue to be regular transparent communicators.
Greenberg remains healthy our leadership position in our core markets in North America, Europe, and Brazil is strong the net.
The next several months will require hard work and continuous focus but this is not the first challenge we face and it won't be the last.
Greenberg well positioned for when a recovery curve in our markets.
And now I'll turn it over to Adrian.
Thank you Lori and good morning, everyone. As a reminder, quarterly EPS full year financial information is available in the press release and supplemental slides on our website over.
Overall results were solid in a challenging environment, we were more impacted in the quarter from the industry downturn, which has been amplified by the pandemic.
Highlights from the quarter include revenue of $636 million and deliveries of 5100 units.
Deliveries include a 200 units delivered in Brazil, and 900 syndicated units.
I forget gross margin of 10.5%.
Cost of goods sold included $4.1 million of severance in the quarter. Excluding this activity aggregate gross margin percent would have been 11.2% EPS.
Selling and administrative expense of $46.3 million is down approximately 7% from Q3, both quarters included about $1.8 million of severance expense.
The effective tax rate in the quarter decreased to 21%, reflecting a partial reversal of the foreign currency related discrete tax item on our Mexican subsidiaries in the prior quarter.
Net earnings attributable to Green Briar were effectively breakeven in the quarter.
Excluding approximately 5.5 million net of tax and non controlling interests or 16 cents per share of integration related and severance expenses adjusted net earnings attributable to Green bar were $5.5 million or 16 cents per share.
Adjusted EBITDA for the quarter was $65.7 million or 8.7% of revenue.
Full year highlights include net earnings attributable to Green bar, a $49 million, our $1.46 cents per share on revenue of $2.8 billion.
Net earnings include 8.4 million net of tax or 26 cents per share of integration related expenses and 12.9 million net of tax and non controlling interest our 38 cents per share of severance expense. Excluding these items adjusted net earnings attributable to Green bar, where.
$17.2 million or $2.10 per diluted share.
We incurred severance expenses throughout 2020, as we adjusted our workforce in response to the industry downturn independently.
Initially we approach workforce reductions as part of the normal course of business. When we were quick to make much larger adjustments across our global workforce starting in March upon the outbreak of depend on mix.
Adjusted EBITDA for the year with 310 million or 11.1% of revenue.
2020 was our second highest year ever for railcar deliveries were 21700 units delivered globally and included syndication of nearly 3200 units.
International deliveries were over 5100 units with nearly 1900 units delivered from our unconsolidated subsidiary in Brazil.
International order activity accounted for 40% of Greenbriers, New railcar order activity of 16600 units are.
Orders for the year added 1.6 billion to new railcar backlog.
In Q4, we recognized approximately $5.2 million of identifiable costs related to COVID-19. These.
These costs included items like personal protective equipment additional labor expense cleaning services and additional interest expense from our precaution rate revolver draw Downs, we expect.
We expect these expenses to continue for the foreseeable future since each as vital to ensuring the ongoing operation of our facilities and our strong liquidity position.
Turning to synergies, we successfully achieved 2.2 million a pre tax cost synergies related to the Hare acquisition in the quarter at $14.9 million in the year meeting our previously announced goal.
The integration team has done an excellent job in trying circumstances over the last 12 months. We are proud of what has been accomplished so far but believe we still have significant incremental value to be realized as we identify and implement additional best practices across our manufacturing network.
And the quarter clean for our generated $183 million of operating cash flow, reflecting continued syndication activity and efficient management of working capital.
For the full year, we generated operating cash flow of 272 million.
Including $405 million in the last six months.
Reimbursement clarity at August 30, Onest was $920 million with cash of $834 million and available borrowing capacity of $86 million with proper.
With projects being concluded we exceeded our 1 billion liquidity and cost savings target while we.
While we have built a substantial cash balance over the last six months, we will continue to enhance greenbriers overall liquidity until we have better visibility on recovery.
We have significant cushion in our debt covenants and no significant debt maturities until late calendar 2023.
Greenbriers Board of directors remains committed to a balanced deployment of capital designed to protect the business has some opinions to create long term shareholder value our board.
Our board believes our dividend program and as the shareholder value and attracts investors today, we are announcing a dividend of 27% 27 cents per share, which is our 26th consecutive dividend.
Based on Yesterdays closing price this represents a yield of approximately 3.3%.
With all that has been accomplished across the company and continued vigilance regrowth.
For our will emerge from the pandemic downturn as a stronger company and we will now open it up for questions.
Thank you at this time, if you would like to ask a question you can press star one on your Touchtone phone.
Your name will be recorded once again, if you have a question. Please press star one the first question comes from Matt Alcott, Sir Your line is open.
Matt Your line is open.
Oh, Thank you good morning.
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Did you guys say what percentage of your backlog is for fiscal 21 deliveries.
We have not we did not disclose that at this point it's.
A little bit of a fluid situation at some of our multi year orders have flexibility in when they place in calendar Twentytwenty. One at this point, so I would say that a good portion of our backlog will be delivered in 2021, but not.
It's not a linear function at this point.
Okay. So I guess the insight you guys have given us so far in fiscal 21 deliveries that they'll be fewer than one key.
Wanting deliveries, but how much you are we are not.
Again, yes, it's a it's a fluid environment not going as you know sometimes it's good to have a little bit of open space. So that we can take advantage of opportunities as they arise so on to Justin's point most of our customers don't operate on our fiscal year. They operate on a calendar year, so when they take deliveries.
Is a bit fluid.
Yeah that makes sense.
And I think you got probably about 1100 orders and.
In North America, Ed My fiscal fourth quarter can you give us some insights on how order and inquiry has been.
Order inquiries have been.
After quarter end.
Let me take the I think we've had we didnt announce subsequent orders, but we have had a strong.
Month in orders was about the same level or close to the same level of awards.
Through last week.
Yes, just heading into 1100, so we've got some momentum.
I'm not sure that 1100 was typically as you know these things go up and they go up and down.
Got a decent pipeline, which reflects the same information I think that others have.
Of opportunities the pipeline of opportunities, which reflects what others have said about their business.
Bill if I may just ask you one quick follow up on the on the demand question.
We've seen some positive signs as of late.
Nation has improved from the last three.
Second among rail traffic is finally heading in the right direction, mostly intermodal and grant I think.
And the industry fleet is on track to actually potentially decline this year.
I guess they are you know.
What do you think needs to happen.
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We just need to see these trends continue or order activity that starts picking up or what else needs to happen for us to start seeing.
Green shoots in railcar industry.
Yes, I will say as we've talked about before Matt.
We see green shoots we just always hope they're not weeds.
The major drivers that we are watching it on.
Are the freight cars in storage, we believe there is a new frictional level of storage much like frictional unemployment.
The low which is hard to go.
That used to be around 280 to 300000 cars now we estimated somewhere like EUR 400, so with the cars take it out of storage and 75000 cars taken out of storage in the.
Just a couple of three months.
Thats storage statistics is something to watch closely and then velocity is of course something to watch closely PSR as had indefinite a positive effect.
A positive effect on reward operating ratios in efficiency, but as traffic comes back as you mentioned a moment.
A moment ago and it seems to be coming back.
It is.
It's important to see whether the speed.
Trains and the dwell times deteriorate for the rarity of course, if they do.
For every one mile an hour it creates.
Deterioration velocity. It creates about 50000 cars that also is not linear so those are the two big things watch that supplies that storage statistics continue to watch the traffic.
And Thats why we are fairly certain that.
That in the second half of calendar 2021, we could see an abrupt snap back in demand is that usually happens very quickly.
So lastly, if you can talk about a shaped recovery, which.
Which might mean for our industry a very rapid.
Top of the K was almost like a b and C.
And still other businesses from COVID-19, doing so well depends a lot to consumer confidence and many many factors, but there is a lot of life.
Like in the end of the tunnel, we just focus on a train.
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Thank you. The next question comes from Justin Long Your line is open.
Thanks, and good morning.
Maria and good morning, I wanted to circle back to the point you made Laurie on sequential pressure in the business in the first half of the year to just make sure kind of Directionally I understand what the message wise is that an earnings comment so we should see earn.
Earnings down sequentially in the first and second quarter versus what you just posted here in in the fourth quarter.
In the second half of the year, there should be improvement and so for all of fiscal 21 will be profitable is that the right message.
I think you picked up on what we were trying to communicate we are in very uncertain time.
The fourth quarter, while strong was quite challenging we expect those challenges to continue in Q1 and Q2.
There is a lot of different moving pieces that create uncertainty.
There are some positive things going on with railcar loadings as Bill mentioned storage statistics come out every time, you turn around it seems we havent.
We have a national election, there's just so many different things that are going on it makes it really tough for us to see over the next six months, how things might dramatically improves but we do.
I believe in the long term health of the rail freight network and we believe in the strength of Greenbrier and we expect it will improve in the latter half of next calendar year.
Okay look at our management mode right now is simply to preserve our flexibility to come back not cut too deeply into the loan we've done a great job of sizing the company for the circumstances. We're in we're focused on cash flow liquidity and.
Getting into that middle 2000.
2021 period, we have a lot of things that could cause the snap back for EPS for us to be.
Very quick and very strongly.
Okay. Thanks, and secondly in terms of the backlog right now is there some color that you can provide on how that splits out between the different geographies and as we think about North America versus the international business I know there was a gap a pretty significant gap in them.
Origins there it feels like that gap has started to close so could you talk about how much of a gap still exists today and how you see that progressing and fiscal 21.
You mean, the margin gap, where the backlog gap. That's correct first question on the backlog second one on the on the margin gap North America versus international.
Yes, so right now about I would say.
Close to kind of between 25% to 30% of the backlog is between Europe and Brazil.
As a reminder, both geographies have orders that extend out beyond our fiscal 21 time period in Brazil actually had orders that extend out into 2023 at this point.
From a margin perspective, you're right that.
No other geographies have started to move closer to our kind of company averages and we do see little more upside in Europe, and the near term although.
Brazil again kind of in line with the bills remarks could respond a little more quickly than anticipated just because there are a number.
A number of moving factors in their economy seems to be responding a bit better than expected, even just a few weeks ago.
Okay, Great I'll leave it at that thanks for the time.
Thank you. Thanks. Thank you. Our next question comes from Allison Poliniak with Wells Fargo Ma'am. Your line is open.
Hi, guys good morning.
Just turning to Europe, which seems to be a growing bright spot there with it seems like some tighter capacity is driving some to rail in terms of the European Irene and you know that you noted some orders there could you give us any color is that just sort of replacement orders today or are you seeing some incremental demand just outside of replacement over in that region.
We're seeing a lot of the intermodal.
Interest over there and other specific car types. They were also seeing the major leasing companies.
Doing.
Making making investments more robustly than might have been expected.
But you're right that it is.
It's bright spot in the whole picture coupled with stronger.
Developing margins in Europe.
And I would say I would add Allison as Bill has mentioned in his remarks, there have been a couple of significant policy developments in Europe.
That is going to push more transportation of freight off of the highways and onto railroad and is it fairly aged fleet. They do not have all of the.
Rains of information that we have here in North America on the North American fleet, the everything that Weve.
Read about that fleet is a very aged fleet. So there is a lot of.
So there is a lot of opportunities for technological improvements and again that that policy push to move freight onto the rail road off of the highways.
Great and then just turning to your comments on around flexibility you know to handle what will be an inevitable upside here.
Do you have open capacity in existing nine today, where you could kind of keep that before you have to reopen how do you think about that operational upside in your ability to react to that here.
I'd say that our manufacturing group and our commercial group are really amazing in their ability to be nimble and be responsive to our customer needs. There's times. When you can look at a production schedule and you think that its full for six months and if we have a comes.
Some are that comes up with something it's amazing how we can make.
Make modifications to production rates or how we are producing railcars to make space that being said.
Haven't steady production is also how restrain efficiency out of the manufacturing process. So we do have some open space on existing lines as we look at our fiscal 2021, and if there was a need in the area, where we didnt have base I have all the confidence that our team will figure out a way to be responsive.
So that to me.
Yes, just to supplement that very quickly Allison it's a good question.
We have.
Instead, our goal extra capacity weve.
Maintaining our core capacity in the United States rights doing very very well. So is principally an issue of what car type might be.
Might be involved.
The weaker we close lines, partly because demand is not there for a specific car type. So we have adequate capacity.
To come back.
Factory Nimbly, and we have capacity, which we could increase on the lines were running so we've got a lot of flexibility is lorries, saying.
We're in a very very good position because of our capital base, we have surplus capital equipment as we close.
Some facilities, we've got equipment, we can move so I think we can come back without a lot of capital investment other than working capital.
Great. Thank you. Thank you.
Thank you.
Thank you. Our next question comes from Ken Hoexter with Bank of America. Your line is open.
Great Good morning.
So lawyer Bill you talked about the syndication I think Lori mentioned, a 150 million a 900 units or about 127000 per car, which is obviously better than the 89000 in the new backlog.
Is that mix is that the scale that we should expect that that pricing has gone down at this point in the cycle to see the backlog get sales, maybe you could just kinda talk a little bit about that and and.
Where are you seeing demand on the domestic side is that generally is it center beams and maybe talk about what what youre seeing on the domestic side.
So to the first question I would say, yes. It does have to do with mix. As you are aware, we build the railcars that were syndicating, we sometimes can be building a six to nine months ahead of time. So it definitely has a different order profile and mix plays into that the other thing that provides the value.
And which is why we syndicate is we do have considerable lease origination expertise and so when you're selling are syndicating that railcar. It's not just the railcar, but it's also the underlying lease and cash flow stream. So that is part of the value that our capital markets team brings to the overall greenbrier.
There.
Yes.
So I don't know that its a perfect comparison, there is probably no such thing as the perfect comparison to look at the ASP in syndication to the ASP in backlog or even orders that being said there has been considerable pressure on pricing here in North America with demand being down as much.
As it is and the overall economy, so that the combination of mix and pricing pressure I am sure there.
Thank you like I think you covered that one of the questions very well and.
Nice to see bank of America here on the call. Thank you again.
Okay.
Second question I think you asked what areas there may be some strength there is there is.
It's surprising how often we have to remind people are railcars railcars 2025 30 types of railcars. So it really is important question.
We're seeing pockets of interest in.
A number of areas and.
We would say that.
A large covered hoppers green and plastic.
Although I think the plastic pellet market is going to peak out here scrap guns chemical and replacement tank cars intermodal may gain momentum as referee.
As referenced in some of the questions.
If volumes continue to grow their storage statistics on a.
You have to watch those closely because certainly include some inefficient cars like spine cars. So.
So we might get to a point, where intermodal will be required again and of course, the perennial boxcar the haiku boxcar replacement demand.
So there's a number of these areas those are things that are not likely to be demanded in the future coal cars and for their meeting through.
For the immediate future sand cars, we had to do a lot to to work with our customers in the sand market, we're happy about where we got that sand portfolio and our leasing business and the like.
The cars we manage.
And we only have in our own fleet about 12000 1200 sand cars.
So those are the that's the activity when we talk about green shoots those are some of the car types that we see.
Yes, Thanks, Bill hopefully you could be on the call but.
The.
You'd eventually got the beams that aren't as far as products.
Yup.
On targets or no.
Forthright exist picking up I wouldn't say, there's going to be immediate demand for center beams, but there could be some surprising how fast is this can snap back.
Due to the reasons that you know very well, having followed us for years.
It is but just when it will happen I don't have any doubt it will happen.
And when it happens and where we are I am sure are there.
Colleagues in the industry will we'll be able to jump on it and.
Function quite well at least talking about the major builders.
Perfect and then my last question just the margins in manufacturing rates.
Rates for backlog.
Now that I guess, Laurie its always tough because we don't get the breakdown of car types or.
Or if there is a difference but should should that should.
Should we anticipate that margins also are under pressure to that similar scale or is there any way you can walk us through how to think about margins into next year.
Yes, Ken this is Adrian and.
Lori talked about margins for next year being in that low double digit high single digits or region.
We're at.
11% excluding.
Severance activity in Q4, so I would say flattish to modestly down.
Forward looking asks on the margin side.
Hi, Thanks, Thank you.
You're talking about manufacturing right not not overall.
Yes.
In in our wheel.
Wheels repair <unk> parts business. So we have seen margins improve particularly as we've.
Made operational improvements on the repair side.
The leasing margins depend on whether weve got external syndication activity, which tends to make those margins volatile.
Great. So laurie thank you very much with that thank you again.
Thank you and our last question today comes from Steve Barger with Keybanc. Your line is open.
Hey, good morning, guys.
Thanks for taking the time today, just looking back to the last production decline in Fyseventeen quarterly deliveries averaged 4001 quarter. It got down to 2600 should we be thinking that's the comparable range for the first half of 21.
I would say that I think that that is a reasonable way to look at it and probably.
Part of this is a lot of it is driven by kind of our syndication activity just when we're producing out of the balance sheet and then when syndication actually occurs off of the balance sheet, but we do see.
A step down from our fiscal Q4 delivery activities suggested he mentioned two numbers 4020.
The 500.
Making remarks in the range of EUR 4000, I would say in the range between the two numbers put out there right.
Okay. That's great. Thank you.
And then just to go back on the margin again, just thinking that the manufacturing margin is.
Is that with the step down in production and just thinking about that in the context of all the cost actions you've taken with the margin that you put up in Fourq you for the manufacturing segment be achievable or is that more aspirationally.
You know I would say that the Q4 manufacturing margin is definitely achievable at 9.4% and that includes severance costs 1.8 million I think a severance costs. So definitely thats what were targeting from the high single digits.
Digits.
So you <unk> the Rightsizing that's taken place already is should be enough to allow that to happen even with the sequential step down in deliveries.
All things being equal.
What's your kind of dramatic change for the worse. We think we are over the Rightsizing, we still have some pockets maybe.
Maybe in Europe that we need to address but we just don't want to it's more of a manpower. The crash people, we don't want to lose our capabilities bounced back very quickly I've been in this business long time as you know I know that it can be gloom and Doom one day and also good boom the Sun comes out and things coming.
Back, but I sure don't think that's going to happen.
For many months many quarters.
And we've got to be cautionary aback over 19, we're not out of this yet those who are saying we're out of it and it's going to be great. So I'm gonna be great. That's going to be people are going to continue to die at a high rate.
In through through the winter until we have some ability to address it and thats addressing of it is going to come through treatment, probably not a vaccine that is universally going to be a panacea.
So we just are being cautionary and we can't predict the future I think thats one of the things Youre hearing from US is that we.
We want to be sure were strong.
That we are able to come back and when the market comes back we will be back.
Meanwhile, we'll make adequate cash really good cash flow and adequate.
Research results in the circumstances.
No I think I agree with all that so thanks for the time today and.
And that's all I have.
Thank you very much appreciate your joining us thank you very much.
Thank you very much for your time and attention everyone have a great Friday and a great weekend. Thank you.
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