Q1 2021 Greenbrier Companies Inc Earnings Call
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Good morning, everyone. Thank you for dialing in from today's conference call. Please continue to stand by our conference will begin momentarily. Once again, we thank you for dialing in for todays conference. Please continue the standby the begin momentarily.
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Good morning, everyone. Once again, thank you for dialing in for today's conference call. Please continue to stand by the will begin momentarily. Thank you for calling in for todays conference. Please continue to standby the begin momentarily.
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Good morning.
Hello, and welcome to the Greenbrier companies first quarter of fiscal 2021 earnings Conference call.
Following today's presentation, we will conduct a question and answer session. Each analyst should limit themselves to only two questions until that time, all lines will be in the listen only mode.
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.
Thank you Joe.
Good morning, everyone and happy New year welcome to our first quarter of fiscal 2021 conference call on today's call I'm joined by Greenbriers, Chairman and CEO Bill from it.
Lord of Korea, President and Chief operating Officer, and Adrian Downs, Senior Vice President and Chief Financial Officer. They will provide an update on greenbriers performance and our near term priorities.
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 are found in the slide presentation posted today on the IR section of our website.
Matters discussed on today's conference call includes 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 actual results from 2021, the beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier and with that I will hand, it over to bill.
[laughter]. Thank you adjusted and good morning, everyone.
Before I begin I'd like to wish everyone on the call happy new year.
Turning to the 20 will be soon forgotten.
Despite the real on lingering challenges of last year, the hope that ushers in each new years, especially strong now.
I want to thank our employees and all our stakeholders for your support.
Together, we are weathering some of them were challenging days of the pandemic.
I have a strong expectation greenbrier will emerge better and even more capable when normalcy returns later this year as we all hope will.
But as we can see.
In the newspaper and the media good times are not here yet.
In fact, we remain in the throes of the pandemic.
And were buffeted by the disruptive forces in the economy and in our markets.
Requires the company and its management team and board to remain disciplined.
As we maintain the strategic priorities I of.
Discussed over the past several quarters.
We believe good outcomes will follow.
Regular operations continue in all of our facilities as a result of extension of health and safety protocols.
Protecting the health and well being of our global workforce is our very first priority.
Keeping our business is open as part of an essential industry is also highly as highly important as is maintaining our backlog.
Our ongoing practices identify and the act promptly upon any potential of 19 exposure from.
From protocols are enforced by management for the high degree of rigor of the highest levels, including our board of directors. The board receives the weekly report on Coleman incident rates and severity.
And and some of the markets and communities, where we operate.
Community spread continues.
To be.
Pandemic levels in December we last remote Alaska.
The COVID-19.
One was a remote I'm sorry, it was a materials coordinator at our Jim's the aberration. He was in his early forties with no pre existing.
The risk factors subsequently during the same week book his mother and father.
The diet Coke of 19.
We remembering him and his family during this difficult time.
One is the fifth member of the Greenbrier family. The died from COVID-19.
Earlier this year, we lost three colleagues in Mexico, and one in Romania.
With an average workforce of 13500 employees since the period from the pandemic began in earnest in March Greenbriers experience rate with COVID-19 deaths in infections is significantly lower.
Then the communities in which we operate as a whole.
In fact, our factories are safer it seems on the communities in which they operate.
Well.
We have of learn about the means to prevent spread of this terrible disease.
So our memories of our colleagues from managers to stay vigilant, whether on the health and safety practices everywhere. We go.
Related to our practices.
Observed in response to cover the 19 as our industry, leading safety performance. In fact, we had the lowest number of monthly injuries in November since we started tracking safety metrics with zero injuries in North America and in South America.
Turning to financial performance, our fiscal first quarter results, where we where the reported loss from operations for the first time in nearly 10 years.
That occurred last during the depths of the great recession.
Despite this loss, we continue to generate solid operating cash flow and important major greenbriers health and vitality.
This results from earlier actions, we executed as our industry entered the downturn in mid 2019, including adjusting capacity and reducing costs prior to the during the onset of the pandemic.
The pandemic compelled us to take a series of additional of tough sales steps.
To protect the enterprise.
And to ensure greenbrier maintain the.
The strongest possible financial position.
We serve Martin markets was cyclical demand that are also uniquely exposed from broader economic forces on this.
This makes flexibility and adaptability and agriculture Green bar survival.
Not only the survival, but its long term growth recovery and well being.
Our industry faced the serious short term challenges.
Maintaining and growing liquidity for Greenbrier has been a core priority.
After achieving or ambitiously liquidity target of $1 billion, we use some of our cash balance is to reduce $82 million of debt the first quarter.
Now with our liquidity goals firmly achieve our focus shifts to balance sheet management, which provides greenbrier competitive advantage as our markets stabilize.
Through this we have maintained the dividend for 27 consecutive quarters, where the current yield of.
3%.
The board just authorized the $100 million stock repurchase authority.
Over the past eight years, Greenbrier has returned 315 million to its shareholders through stock buybacks and dividends.
With the rightsizing or our capacity nearly complete.
Greenbrier is operating footprint is well suited for the market recovery expected in the second half of the calendar 2021 share.
Yes, we have taken in the past several years of resulted in the strong industry leadership on three continents and the data we studies suggest that when a return to normalcy.
As of right.
That the rail business will react very quickly and there shouldn't be a snap back the SEC.
Overall, we are cautiously optimistic about the U.S. economy.
And the world during the next 12 months.
The recently enacted the federal stimulus package Nash.
Mass vaccine distribution steady consumer spending and the promise of robust infrastructure package emerging from the New Congress and the administration in Washington on.
Overall favorable developments.
However, the and Jimmy does not of Beijing.
And the business shutdowns continue or increase momentum could stall and delay the recovery.
In any case, the economic repercussions of the endemic will linger well into the first six months of 2021.
After this period I expect emerging strength as I've said earlier in our sector.
All the economies worldwide rely on rail transportation as an important vitally strategic and environmentally friendly industry.
We expect.
And an industry recovery in the rail to be of bellwether for the economies rider recovery.
In the meantime, our diversified backlog value to 2.35 billion provides us the base load of orders as we gain greater response greater visibility into customer requirements over the coming months.
Greenbrier occupies a fortunate position, where we can rapidly expand capacity as outlook improves in fact, however, as others are doing we are reducing capacity and rightsizing organizations with the lower class footprint.
Rapidly achieving economies of factory utilization at scale, along with the greater direct investment railcar leasing will be the heart of our ability to regain profitability quickly when normalcy returns.
We've done this through previous industry down cycles on our past experience, we believe will guidance now.
Back in 2200 per exempt from 2010 for example, as we emerge from the great recession, we had a backlog of just 5300 railcars valued at $400 million at our year end.
Rebar scale and capabilities of substantially broaden since then.
Recent highlights from a remarkable decade of expansion since 2010 include a much larger share price.
The 20, North American railcar orders.
The diversity of the railcar types, we now build is much greater than before the ever.
Before.
Our current backlog exceeds our 2010 marked by more than five times leverage.
Leveraging off of this growth and scale, our stronger franchise Greenbrier enters the read the emerging recovery extremely well positioned.
The benefits of our expense reduction initiatives will continue as our markets return to higher levels. Despite.
Despite current market and economic forces Greenbrier is long term outlook is very positive.
Our business generates strong positive cash flow we.
We need a strong liquidity position and balance sheet, we are addressing today's challenge challenges resolved resilience and determination.
And we are confident that the new year brings better days ahead.
Now over to Lori just curious.
As of the Chief operating officer.
Thank you Bill and good morning, everyone happy new year.
In fiscal Q1, Greenbrier operating well in spite of the week Connie.
And while the financial results on the quarter were challenging with our as Bill noted our first operational loss of nearly 10 years I.
I am proud of our performance against the backdrop of the pandemic any earlier industry downturn.
While financial results are important.
Now more than ever before companies have a responsibility to all of their simple.
And we agree of our take this responsibility seriously kind of outline in our second DSG report, which was published back in October our focus on employees day.
Safety.
Diversity equity and inclusion or the eye.
The environment and governance as well as the ways, we are engaging with our communities around the world.
Our report, which aligns with the sustainable accounting standard board are savvy can be found on our website.
Greenbrier remains focused on executing our COVID-19 response plan as Bill mentioned several times.
We are not complacent and we will continue to work hard to ensure our employees day say our facilities remain essential and group of our strong liquidity and market leading positions remain intact.
We remain poised to flex our manufacturing footprint as conditions evolve.
Specifically, we believe Greenberg North American manufacturing capacity is well positioned for the current market, while ensuring the capability to ramp up quickly and efficiently when demand improves.
Now moving on to the discussion of our results we.
We delivered 3100 railcars in the quarter, including 400 units in Brazil.
We received orders for 2900 railcars valued at approximately $260 million.
And notably orders of originating from international sources accounted for about 30% of the activity in the quarter.
The average sales price per orders increased sequentially across all of our geographies, primarily driven by product mix.
And the net of orders and deliveries on the quarter or book to Bill ratio was nearly one time, resulting in an ending backlog of 23900 units valued at 2.35 billion.
Our global manufacturing group performed very well in spite of the weak environment generating 9% gross margin. Despite a 44% sequential decline in both revenue and delivery.
And this margin performance and current despite higher expenses at each of our facilities associated with the protocols necessary to protect our employees, while building railcar safely and efficiently.
And internationally the order activity continues to recover with both our European and Brazilian operations largely book into fiscal 2022.
Now turning to the wheels repair part.
Well, the North American fleet utilization in rail traffic.
His recovery.
The volume our remaining weak.
In these operations in our wheels repair <unk> parts operations gross.
Net pricing improved in the quarter, which helped offset some of the volume declines and we continue our focus to have us well positioned shop that serve our customer base in the efficient and safe manner.
Our network remains poised to respond quickly when activity levels improve later this calendar year.
Our leasing and services team continues to navigate the downturn well the fleet utilization increasing sequentially due to successful remarketing effort during a time when nearly a quarter of the North American fleet is in stores.
And our management services group out of about 14000, new railcars under management during the quarter, which brings the total railcars on your management the 407000.
We continue to see the first half of fiscal 2021 has been challenging on top of the fact that historically, our Q2 of tends to be one of our weaker quarters, but.
But.
We remain optimistic about of recovery beginning later in the year, which will more than likely benefit our fiscal 2022.
We still expect gross margins to be on the low double to high single digit range and are working hard to improve our financial performance.
Despite the current environment Greenbrier remains healthy.
We solidified our leadership position in our core markets in North America, Europe, and Brazil, and are well positioned for recovery the issue.
Aggressive measures we've taken over the last 10 months ensure that Greenbrier <unk> exit the pandemic economy, a stronger and leaner organization.
And on Adrian I'll turn it over to you for the financials. Thank you Lori and good morning, everyone.
As a reminder, quarterly financial information is available in the press release and supplemental slides on our website.
We performed well despite low levels of business activity, reflecting the full impact of the weak demand environment, especially in North America. A few highlights in the quarter include revenue of 403 million deliveries of 3100 units, including 400 units in Brazil I.
The good gross margin of 10.1% on our manufacturing margins held up well at 9% despite the low delivery rates.
Selling and administrative expense of $43.7 million is down 5.5% sequentially from Q4, reflecting the continued spending controls enacted in March 2020, more importantly.
Selling and administrative expense is down 20% from the first quarter of fiscal 2020.
Looking forward, we continue to expect annual selling and administrative expense will be approximately 170 to 175 million level last seen in 2017 before the formation of Greenbrier Astra rail in Europe as the Air I acquisition.
The effective tax rate in the quarter was the benefit of 55% when.
When pre tax earnings or loss levels are low discrete items can have a disproportion of impact on our quarterly tax rates.
More than half of the benefits was driven by favorable discrete items in the quarter, primarily driven by foreign currency fluctuations. So we would not expect the tax benefit to the this high in future quarters.
Net loss attributable to Green bar was $10 million or 30 cents per share.
Adjusted EBITDA for the quarter was $23.2 million or 5.8% of revenue.
In Q1, we recognized approximately $3.9 million of identifiable cost related to pull the 19, we continue considering these costs vital to the safety of our employees and the ongoing operations of all our facilities and expect them to continue for the foreseeable future.
In the quarter, we merchant of rated modestly positive operating cash flow of approximately $9 million.
Mean growth of liquidity of November 30 was $810 million the cash of $725 million on available borrowing capacity of 85, none of them. While we remain highly liquid we of prudently use cash in the quarter, reflecting over 80 million of debt repayments since August 30 Onest.
And we also have a 150 million of the additional initiatives in progress.
The other primary.
So we.
The paid 80 million of debt as since August 31st on the other primary use of cash in the quarter was to invest in the least things leasing on services capital expenditures are primarily discretionary maintenance capex is around $5 million to $10 million annually and the other expenditures on opportunistic on driven by the underlying economics.
In the quarter, we invested in our lease fleet for a few different reasons first leasing investments or tax advantaged on.
Second railcars on long lived assets on our balance sheet strength allows us to hold the assets, while the selecting a stable cash flow stream.
Looking ahead, we continue to expect capital expenditures and manufacturing and sales repair parts to be around 35.002 million 21, a level that supports safety and the required maintenance.
We continue to have significant cushion in our debt covenants and no significant debt maturities on to late calendar 2023.
Reimbursed board of directors remains committed to a balance deployment of capital, including extending our share repurchase program through January 2023 on continuing the strong quarterly dividend.
Today, we are announcing a dividend of 27 cents per share, which is our 27th consecutive dividend.
Based on yesterday's closing share price this represents a yield of 3%.
Im excited the buckling bright future and appreciate all of the hard work of our employees to ensure that we emerge from the downturn of stronger company.
And now we will open it up for questions.
Thank you at this time, if you would like to ask the question. Please press star one on your touched on phone. Please and share is it. Your line is on muted on please record your name along much of your company to be introduced are from.
First question will come from Justin long with Stephens. Your line is open.
Thanks, and good morning, happy new year.
Your adjusted the year so.
So maybe the kick things off I was curious if you could comment on order flow so far in the fiscal second quarter curious if you've seen any pick up the can either north America or internationally and maybe you could just share your view on orders going forward. I know you are talking about the second half recovery.
But is that based on the assumption net orders remain pretty stable on the first half and then go to something above replacement demand in the second half of I'd love to just get a little bit more color around that view.
Thank you Justin on.
Starting with the our backlog of one of our goals is to maintain our backlog.
To keep our factories are operating at base rates as we now have them. So we can scale upward.
In the when the.
Recovery comes we don't want to triple or so so much. So we are seeing positive orders.
Order flow.
But as you know in this industry orders can be spotty, thus far of it for the first nine months.
I think we have.
Done very well maintaining.
The replenishing our backlog.
While the.
There are some fundamentals that suggest the strength will come back very quickly we look at as you probably know.
Right well better than we are out of the railroad traffic loadings. The story of cars the velocity on rail, which has fallen over two miles per hour.
In the last year, and Thats, usually a strong indicator of growth.
Orders.
The pipeline so we have a good pipeline.
It's tough out there and margins are short we're facing some competition essentially funded by the U.S. government, which is kind of a shocking thing given the position we've taken.
On China's entry in the United States, but.
I grass I think I think it's really just a matter of what will happen when stored cars reach what we believe will be the level of around 400000, which is a level.
We will shut prompt renewed investment that's gone up quite a bit.
In terms of that that breakeven point it used to be down around 300, 250000, but because of many types of of cars that are just not going to be moving out is around 400000 cars today. The storage is roughly 426000 cars. So we're almost at that point, where.
Lot of demand is there and we should start seeing strong order book from Jack as something that maybe just a little bit I would say on from talking with our commercial team.
They are still having a lot of conversations with the variety of customers. We do see some activity out there Justin but you know as you know sometime the end of the calendar year can be.
Boom or a little bit of the blast I think this year in particular on there's probably a little bit more modest activity as people tend to use the holidays and the time to take the pause on wheels.
Back to more of that activity to pick up early in this calendar year and I leave you with the last thing that I heard from our commercial focus is there.
They are seeing better quality in some of the inquiries that were getting around opportunities as opposed to on just on the keno checking in on and things like that they are seeing on.
Their quality to the pipeline.
Okay, Great that's helpful and maybe as a quick follow up on manufacturing gross margins I think you've talked about the fiscal second quarter typically being the most challenging of of the year. So is the right expectation that sequentially next quarter, we could see manufacturing margins get.
On a little bit worse, and then in the back half of the year get to that low double digit range.
Well I think it's fair to assume since manufacturing is the largest part of this organization that if the second quarter and the weaker quarter, the you're going to see that reflected in manufacturing, yes. That's for adjusted in the whole story here. The old takeaway is volume volume volume right, we've been able to maintain our margins the admirably despite.
Right.
From adding reductions or revenue base.
And that is quite an accomplishment.
And I thought of this industry for a lot of timing I. Appreciate the that's not an easy thing to do but we continue to have.
Decent margins on our backlog.
Net.
Moving below.
Cash or doing anything like that we're showing pricing discipline and I think the others are as well. So we are hopeful that we can do well.
I have a few more months as everything sorts out that we think will cash we hope will pass quite quickly.
Me too I appreciate the time, thanks as always.
Thank you Justin.
Thank you Sir our next question comes from Bascome majors with Susquehanna. Your line is open Sir.
Yeah, Good morning, and thanks for taking my question.
Following up on some of the Justin's question there.
You guys have clearly done a tremendous amount of work to do.
Lower the breakeven of the company and protect.
Your investors of your cash flows on the downside you know as recently as last summer you were suggesting some optimism that maybe even in the net.
Very tough marketing operating environment debt.
You could potentially deliver breakeven results at least on the earnings for the full year.
Oh set of question.
Actually it looks like of Baskin dropped off the line. So we'll take the next caller.
And.
Okay, Okay, well come back and answer that question I think we can remember the question yeah.
Yeah.
We are still on the our next question then will come from Matt Alcott with Cowen.
Your line is the thing.
Good morning, Thank you all.
I wanted to follow up on the on the order outlook question.
When you think about the initial phases of that demand recovery, where do you think the most significant.
The impact will come from is it going to be larger less stores trying to lock into the current favorable pricing too so.
Sign multi year supply agreements or do you see some pent up demand from shippers, who had been discouraged by the political on.
Virus on certainty and we'll now jumped from one place those orders.
I don't think we'll see multi level or multi year orders at the stage in the cycle of is typically come on.
As the capacity gets constrained and lessors are concerned about having access to capital not the capital the two equipment. The big drivers are stored railcars velocity.
Shippers will be primary source and among the car types, we see strength and boxcars.
Probably including its weighted boxcars, we see the softer market for tanks, and we see some surprising strength in automotive and the a number of other specific car types. As you know our industry is very specific with the spec to car types and the storage statistics are really important to watch.
Because of sand cars for example, the maybe 75000 of 70000 of the scar store, they're not likely to come out, but thats a big chunk of 400000, the intermodal cars are actually very.
Cash and so you know theres a lot of stuff going on.
And just very specific new car types of customers.
We do expect to.
And improve our loan leasing model and the do more ourselves, but we will continue to work with operating lessor partners as we have before and continue our syndication activities.
Okay that makes sense.
I was just curious as to the weather the attractive the I would imagine the the pricing loans right new railcar pricing is very competitive now so what's the harm if you're on large less or add on signing of supply agreement.
And you don't necessarily have to exercise the.
Right away.
Signing of the current prices.
And on that.
So instead of waiting until they get pass the actually the possibly shortage Dennis new top on a book.
But what what you what you gave bill on those does it make sense on and then the did you guys say what percentage of your backlog is international I think job last quarter. It was 25% to 30% of if I remember correctly.
And it's holding up out there Matt its about 30%.
Also Matt.
The outlook in both Brazil and in Europe.
Our backlog there were practically book through 2022 in the Europe and similarly, we've had a very good resurgence and the demand in South America.
So really it's the north American market that we've been principally talking about here, which is our largest market.
We will invite me.
Yeah, well on the both the.
We think of what Youre a plan they should buy when railcars are cheaper, but they don't for some reason they buy when they are more expensive, it's always a bit of Apple went to me.
Yeah.
Interesting.
And you mentioned Europe most of my final question about Europe.
On the operating loss on in Europe saw what market is always almost all of it.
Though the.
At full utilization of.
The lease terms on sort of bought the utilization is usually very high and.
And there is on offer to move more freight and so.
Well from the highway in Europe.
When can we expect the C.
On a pretty material improvement in demand for.
Railcar manufacturing as of the continent begins to.
Oh right off the off the highway and and can you give us an update on your market share as the manufacturer in Europe.
And I guess, if I can start value can come and I do think that we're seeing a pickup in demand in Europe right now for exactly the range and you are talking about they've certainly been hit by the pandemic I'm like we have here in the United States, which has created a pause on their economy, they're going through.
The second or third round of that pause right now that we have seen an uptick in demand in Europe. We have certainly seen some interesting behavior by some of our competitors. So you know it's it's one of the things that we're watching very closely just like here in North America were maintaining our discipline.
We don't want to lock up all of our production capacity with low to no margin work, we value our work a lot more than that we do think that there will be steady.
Steady increases and the need for railcar as we move into the second half of 2021 in Europe as well. So we're looking forward to that and bill Yeah I heard on that.
Issue of multi year orders the earlier ask the that's one area in Europe were two large multi year orders were placed in both cases, we declined to meet the competitive price.
There are roughly where there are three or four car builders in Europe.
We share the lion's share of that market with the Tucker of have gone.
And we have refused to do multi year pricing with fixed pricing on the materials and components because we believe in the middle of the summer of that those were components.
Components of costs are going to go up and they are beginning to move already.
We still have a very strong demand in those two marketplaces as I mentioned.
The.
So would you guys consider consolidating the market further in Europe or would you run into any regulatory.
Regulatory issues, if you tried to do that.
No and yes, we are not going to we probably are going to round off our business model by adding more sophistication to our leasing side of the of the business. We will have adequate capital to invest we tend to.
Paid on debt.
On the time is right.
And to invest further on our leasing platform, we already manage or 400000 railcars in the industry of a good management platform, we probably see growth in that area not necessarily in Europe, Although we are evaluating the.
Well. Thank you I'll pass on the wrong come from Ken Hoexter with Bank of America.
Brian is open.
Great Good morning, happy new year.
Really a great job on on the manufacturing margins given what's going on so so congrats on that but but looking lori of a bit maybe at the the <unk> piece, there and pricing maybe we could just delve into that a little bit and talk through the bill just mentioned the different types of cars can you talk about what what types. We're seeing in terms of the order book and.
And.
Understanding that you don't give exact numbers, how do we kind of volley what's going on in terms of filling up the order book with the lowest asps versus the the future margin impact on it.
Sure and can you certainly then follow on the market for a long time and know that A.S.P. can also be driven by car type and how much material goes into a car can certainly create a higher price I would say here in North America, we've had a nice mix of.
Order types of car types on the order in the first quarter.
I'd say there was probably a fairly.
More sizeable chunk of boxcars, and some tank cars, which tend to have a higher ASP and then in Europe on Brazil again, when I said, our asps have improved sequentially. It is across all three geographies, Brazil, North America, and Europe and again, that's that's primarily car type.
Driven but also going back to what we've talked about is our discipline of not being willing to meet on competitors some competitors pricing, but to look at.
What is the right price that we need to have to operate on facilities.
And Ken This is just on real quick when we do have a stronger international mix.
Especially with a strong mix down in Brazil for orders in the quarter. Those units are typically smaller and the Sps are just lower in general so it definitely does come down to not this mix of car types of mix of geography as well.
Okay helpful.
And then just on the the your parts and leasing margin. We're also kind of down significantly can maybe just walk through the is that a factor of just lower business on on the port side and so therefore, you have more fixed costs and and so we should see the margins fluctuate as volumes come back and then maybe similarly on on leasing is that just the.
The factor of of rates driving that maybe just walk through kind of how we should see the the rest of the year flow through on the the other segments.
Sure on wheels repair <unk> parts, there certainly being impacted on like manufacturing with lower volume of repair activity on asset owners of tend to the cars into storage as opposed to repairing them and then putting them into the store. So that's not necessarily an unusual phenomenon we have made adjustments.
Two of our cost basis in that segment and we continue to find ways to integrate at more better ever again, a management cost, but we also want to maintain on platform that can be responsive as demand comes back we've got that group working very closely with our management services group, which I.
That is.
Now managing over 400000 cars in North America. So we.
We see there being tremendous synergies between the cars that we manage and having a network of repair shops, so on the wheel repair and part of side.
We do expect margin to the challenged in the near term until the volume comes back we got some benefit on the revenue side because of the scrap pricing.
On the leasing and services side. This was a quarter, where we have flaws of railcars that we had acquired on the secondary market that were sold and when we have those kinds of transactions as you'll recall.
That runs through revenue and cost of goods sold so margin percentage is diminished even the margin dollars are maintained.
Great. Thank you very much of the time of it and just one quick number from Adrian if I can sneak one in just barge revenues do you give.
You provide debt.
How about $20 million.
Perfect. Thanks, guys, hoping you appreciate the color thanks, Jim Thanks.
Thank you for your question. Our next question will come from Bascome majors with Susquehanna. Your line is open Sir.
Hey, Brad.
Yes, okay.
Thank you for giving me of second shot here I I don't know how much of the first question came through so I'll just the remember once you asked yeah I get to the point I'm.
I'm just curious you know given the whole you're starting out in the first quarter and some seasonal and cyclical challenges on the second.
Is there enough opportunity to to make it up on the back half and get you to that break even point in the cycle trough year that you've been striving to and if you could maybe address that in terms of earnings as well as cash flows I think that would be helpful. Thank you.
Sure Bascome I, let me just say, we're not giving earnings guidance. We said, what we said we haven't given up on of achieving.
The achieving of breakeven in the year, that's our goal, but we're going to have to have a really really strong fourth quarter, because I expect we expect economists expect.
Hi, hard times ahead for the next four months for the <unk> 19, the death rate of 3750 yesterday the above the trend line that was expense projected just a month or two ago.
On on by meeting economists and health experts.
We're going to have some impact that will have an unknown black, but if we have a very strong.
Fourth quarter, we get stronger snapped back in orders, which could occur if you watch the dynamics I think it's possible to do so but it's a it's kind of really depend on the last quarter of the year.
Fiscal year, but I think beyond that in 2022 the.
You will have very strong momentum.
And I appreciate you addressing the within the uncertainty around the us so it sounds to me like the biggest variables would be some orders recovery and whether that happens.
During the fiscal year or maybe later in the calendar of year into the next fiscal year and it's more of a timing issue than anything.
Could you also just maybe address any visibility you have into the cadence of your syndication channel and when that could potentially go from an earnings headwind to a tailwind when you have some of those larger chunk of your sales like you typically do later on your year.
Yes that was principally for cash management liquidity, we were managing cash are aggressively continue to do so on it.
Two other big factors that can contribute to demand very rapidly as the railcar act, which will be of reintroduce.
On the new Congress.
Okay, very close to getting a coalition that was reflective of that on that one that will have the stimulus effect on.
Or a low.
Cash efficient.
Energy efficient of railcars in the scrapping of cars that are less efficient on.
On the infrastructure Bill is also something of could bring good benefits for our industry and it appears that that is very very likely to occur in the new Congress some of that depends on what's going on for today in the aeration, Georgia, but it looks like.
The situation is going to be very positive for those things other two things to watch the or industry and I think we're reasonably optimistic about both of those.
Other than that.
Yeah.
Those are two things I think you just should should focus on.
Hi, Thank you mentioned cash as well and use of lean did of positive cash flow in the quarter and even in hard times, where the business that can generate cash as we.
Manage our working capital level, so we sort of some more opportunity there.
Thank you book.
Thank you.
Thank you. Our next question from Allison Poliniak with Wells Fargo. Your line is open.
Hi, guys good morning on.
I was just wondering when they go to back to the on I guess on somewhat the key to the cadence on you talked about obviously, a baseline of capacity, which makes sense in terms of protecting the downside the more specifically positioning upside, but when we think about Q2 should we assume the production level that you had in Q1, it's something we should see in Q2 or.
It should could that be lower as we're thinking about our models here.
So working days range of say, there theres fewer working days and we do have a few kind of Latin major line changeovers. So Q2 could have lower production and this and then we actually are as Bill mentioned building cars onto our balance sheet as part of our syndication model, which will be syndicated into Q3.
The in Q4, so from a production and delivery perspective, Q2 could be modestly lower.
Understood and then just turning to Europe, you talked about you know a pretty solid backlog in Europe are you guys running at full capacity. There I know you've had on challenges from an operations standpoint on a while back you know I have the.
So its kind of you know I guess correct correct at this point where profitability could improve in that region for you.
Yes, we are not running at full capacity and we've addressed the unfortunately.
Unfortunate operating issues that the.
Like this for the last year end debt.
Into the second half of the of.
Over the year, so we're expecting a day.
Lift up in the.
But.
But we're not at full capacity, we have the more we can do there.
Got it thank you.
Thanks Allison.
Thank you our last question will come from Steve Barger with Keybanc capital markets. Your line is open Sir.
Thanks.
Below your primary competitor here in North America as part of the coalition in the wants to drive modal share by using telematics and data analytics to I think to improve service levels. So just being a big OEM and railcar manager of whats your position on the need for a telematics platform.
Lots of Great question, and we think it's very intriguing on film.
The initiative, it's very significant that it has class one support of at least the very strong sponsor in the eastern railroad. So we're studying the this there are other options on.
Our management platform gives us a great base, if we decide in the that the problem has been nobody wasn't really wants to pay for that.
And there are other day.
Details, we don't have if we can get out into offline. If you want to do but we're interested in net were tracking it and.
It makes a great idea, it's a great idea if people will pay for which I'm not willing to allow for it yet and I would just say that we're always in favor of things that improve our industry right absolutely that improves the overall industry, leading the leaves the willing through Greenbrier. So.
Well just the follow up on that then it was the <unk>, what's your liquidity position being really strong and you have an expectation the things improve in the back half of this year.
Are there any specific technology investments, you're making or thinking about the could improve the efficiency, whether its internal or external.
I'd say, our engineering group is regularly reviewing ways that we can build cars differently and sometimes you know to those of US who said it doesn't look at computers. All day. They may seem fairly minor of fat on when it comes to the railcar the to build it can have an extraordinary impact whether it's on the carrying capacity.
Or the happiness of the railcar, allowing us to carry more product on the train to have you know more cars in the train. So I would say that's the area, where we're focused mostly on technology and improvements for the industry is around.
How are doing.
Looking at the design of railcars and refining that.
Bill had mentioned our management services group and we manage again over 400000 cars, that's an area, where we're regularly updating the systems that we use within that group on where we manage on maintenance and.
The car hire and logistics and regulatory services. So we're regularly doing things like that around technology. The other on two fronts on the technology that are reported as I wouldn't be a manufacturing technology to make a of factors more efficient to use the.
I am not fiveg the from China.
The technology to have smart factories lean factories adaptable low changeovers.
We have the team working on that and the second would be cyber security. This is a growing the risk to all companies, we operate where we have sort of vulnerabilities. If we were.
Penetrated we've all watch those headwinds so our board is concerned about that we're concerned about it on investing to protect ourselves in that regard.
Got it and just one last one you've done a nice job of diversifying internationally over the last few years and hopefully in the future. We won't have a negative catalyst on a global basis like we saw on 2020, but just philosophically is there a vision for further diversification to mitigate cyclicality and and if so what makes sense the add on on.
Or expand into.
Laurie handles our strategic work I'm going to let her address that first by way of a common or two on it.
As the great questions D. The is very interesting I would say that right now we're focused more on how we can.
Generate more benefit out of our non manufacturing operations. So again, it's the manufacturing of new railcars. It tends to be the most cyclical if we can look at how we approach our leasing business our management services business, our repair network and think about that as ways to offset.
Creates repeatable revenue on them and the steady cash flow out of those businesses to reduce the loans of manufacturing new railcar demand I think that's that's very beneficial one of the things that can do the work as we do that in here in North America loss of love to the other day.
The other pieces the if there's ways to non.
Not necessarily copy and paste, what we're doing in North America, because every geography of different every business environment and the little bit different we learned that early on on the went to Europe. That's how we don't want to me out of the Ugly American thinking that we know we have the answer to every question on.
But we have improved how we're approaching things and we'll look at those other geographies as well.
Good.
Well I was just going to say, it's hard to reinvent the wheel when you're talking about leasing or anything is there anything that you have line of sight to or is this kind of of.
In the brainstorming.
Well, it's a line of sight and we intend to.
The.
The more sophisticated about our leasing business to choose our partners wisely, we have some very strong operating lessor partners. We have some very strong syndication partners, but with the current tax climate will be true.
Wish not to increase the amount of annuity stream producing leases on our own book should given the economics of the railcar leasing.
Of course risk factors on that.
But we are we are actually increasing our portfolio.
And that has had some on we'll have some short term of effect, but from the longer with respective of will create a stronger annuity stream and will be appropriately financing.
Thanks for the time.
Yeah.
Thank you very much everyone for your time and attention today and if you have any follow up questions. Please reach out to myself or Lori tourists of a great day. Thank you happy new year happy new year.
This does conclude today's conference call. The thank you all for participating you may now disconnect and have a great rest of your day.
Speakers standby.