Q3 2021 Greenbrier Companies Inc Earnings Call
Pardon me, ladies and gentlemen, the Greenbrier companies third quarter conference call will begin shortly so please continue to hold and gotten the Greenbrier companies third quarter conference call will begin shortly so please continue to hold.
[music].
Hello, and welcome to the Greenbrier companies third quarter of fiscal 2021 earnings Conference call. Following today's presentation, we will conduct the question and answer session.
Analysts should limit themselves to only 2 questions and until that time of all lines will be in a 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. Roberts you may begin.
Thank you Eiley and.
Good morning, everyone and welcome to our third quarter of fiscal 2020, 1 and conference call.
On today's call I'm joined by Greenbrier, as Chairman and CEO Bill Furman.
Laurie to Korea, President and Chief operating Officer.
Brian Comstock Executive Vice President and Chief commercial and we see the officer and Adrian Downes, Senior Vice President and CFO.
They will provide an update on Greenbrier is 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 can be found in the slide presentation posted today on the IR section of our website.
And as a reminder, matters discussed today.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Throughout our discussion today, and we will describe some of the important factors that could cause greenbrier and actual results and 2021 and beyond to differ materially from those expressed and any forward looking statement made by or on behalf of Greenbrier.
And now I'll turn it over to Bill.
Thank you Justin and good morning, everyone. The.
The recovery and our markets and we forecast from the second half of this calendar year is now well underway Greenbrier, followed a disciplined strategy throughout the pandemic and as a result of the company is and a very strong position.
The last year, we articulated our strategy centered on continuing safe operation of our facilities as critical supply infrastructure under U S. Presidential policy number 21 U S Department of Homeland Security and the U S Department of transportation.
We also emphasize building and sustaining a strong liquidity position to withstand worst case scenarios, eliminating all nonessential spending and reducing our fixed cost right sizing our labor force Julien.
Reduce the pandemic demand.
Our actions were purposeful and particularly regarding employee safety.
And the issues related to our cost base and manufacturing capacity.
Greenbrier has a flexible of this business plan and our flexible manufacturing.
Our strategy along with scalable manufacturing these are central to Greenbrier response.
Not only in the V shaped downturn, but in the improving market outlook and the upturn and strong economic recovery.
This phase of our strategy is equally important and presents novel challenges and operational risk as we add a large number of new production lines many of evolving product changeovers Manny.
Manufacturing line additions and new designs.
Simultaneously and Lima, faithfully and I emphasize safely integrate large numbers of new where 4 of our furloughed manufacturing employees.
Fortunately, our management team of seasoned and experienced at managing the operating dynamics.
We are confident and our ability to execute.
Of course of COVID-19 continues to be an issue and we are addressing.
Reduced can change and rates among our workforce and the U S and Mexico and Europe are very good to see Brazil remains of hotspot.
And because we are proactive of cases, among our Brazilian colleagues remain relatively low.
Despite these measures we recently lost another colleague Jorge tell us too.
To COVID-19.
Jorge work and the paint department at our Greenbrier.
And otherwise known as the plant 2 facility the Mexico. He was and it's early forties and it worked and Greenbrier and for over 4 years.
The 8 member of the Greenbrier family, we lost the COVID-19.
Supporting this family through this difficult time.
As vaccines become more widely available around the world. It is essential to remember.
And the COVID-19 is a dangerous and increasingly contagious disease.
We are urging and and shifting our employees to get vaccinated I urge all of you to consider doing the same thing who may be listening on this call as new Covid variance of peer globally, we will remain attentive and defend our employees and our stakeholders against this very continue the discontinued very.
Real threat.
Please proceed of Greenbrier and financial results for the quarter demonstrate the strong solid performance.
Lorie and Adrian will cover our detailed results later in the call.
For now I will simply say that we are very pleased and Q3 earnings moves Greenbrier solidly into the.
Black for fiscal 2021.
Through 9 months.
After a very weak first half.
And the outlook is strong for the fourth quarter and 2022.
Importantly, our liquidity position also remains strong.
At the end of the third quarter of 2020, we announced we achieved quarterly target of $1 billion.
Despite some challenging quarters Simpson and Greenbrier continues.
<unk> continues to maintain.
Almost that level of liquidity, Inc.
<unk> cash and additional available borrowing on our debt facilities.
Future tax refunds and other initiatives underway.
And the third quarter, we also executed a strategic debt refinancing and taking advantage of the opportunity to do so and these markets.
Our money is reasonably available and.
And interest rates are cheap.
We extended maturities on our convertible notes out of another 4 years and favorable interest rates.
Liquidity is important during a steep recovery cycle of the steep cycle remembering that this is a 100 year pandemic that everyone has had to navigate.
And this is part of the cycle requires increased working capital and so we're pleased that we will have the working capital.
And deal and navigate through this time.
Particularly and when supply chain is being a little roiled.
We are balancing efficient management of working capital and.
And protecting our supply chain, ensuring production and labor continuity.
Our current strategy along with the 3 year strategy of achieving scale.
Alright.
Our business are producing solid results and Greenbrier has grown substantially over the last 3 years and.
And 3 separate markets and as Laurie.
And they speak to all of your questions and answers.
The international backlog now is.
It's about a third of our of our base.
Yeah.
The results in the third quarter reflect both the steady recovery and our markets as well as Greenbrier has the ability to manage through some of the most challenging quarters and the Companys history.
And in fact in the.
Over the last hundred years.
During our last 2 Charles I discussed many of the steps of Greenbrier was taking to prepare for economic recovery and positive momentum and our markets. This momentum is reinforced as we prepare greenbrier 3 year plan.
And navigate as we achieve greater scale and efficiency.
The greatly reduced and leaner cost structure achieved during the pandemic should also be a boost to our business unit and efficiency and our financial momentum.
We are enjoying we're joined today by and important guest.
Ryan Comstock.
Brian as Greenbrier, as executive Vice President and Chief commercial and leasing officer.
He is here to share a little bit more about our outlook on the commercial side.
Of our business Brian Thanks.
Thanks, Bill and good morning, everyone.
Across the economy, there are positive indicators and data points that indicate a sustained recovery and rail and.
And North America, the latest U S economic indicators reflect growing optimism with GDP consensus forecast growth.
Continuing to be revised up.
Through May and North American rail traffic was up 12, 1%.
Loadings were led by increases in grain and intermodal and auto.
We expect to see continued near term demand for intermodal units and grain covered hoppers as both segments continued to set monthly volume records.
These segments should remain highly active well into 2022.
Overall system velocity has slowed approximately 2 mile per hour due to robust rail freight recovery.
Slowly rail velocity as everyone knows decreases railcars and storage and increases demand for new railcars.
Certain railcar types are in tight supply, including intermodal units boxcars and gondolas and these fleets are almost fully deployed with over 95% utilization.
Total North American railcar utilization is nearly 80% as of June <unk>.
Since the peak last year over 160000 cars have been taken out of storage and North America, bringing the number of stored cars to approximately 360000 units.
With higher scrap pricing and proposed tax benefits for construction of new more efficient and environmentally friendly equipment, we expect the trend of declining cars and storage to continue.
We are also seeing robust activity and the railcar conversion market with the recent 1.
And car conversion order.
The increase in commodity prices almost.
Across almost every important sector has captured our attention the.
Current price of steel has more than 3 times higher than the August 2020 price.
Greenbrier continues to utilize price indexing and material escalation pass throughs to protect gross margin dollars, although elevated steel prices can be a potential headwind order cadence remains robust.
And Europe longer term broad scale economic reforms to address climate change.
Our ushering in an era of modal shift for free.
From polluting and congested road travel to the efficient higher speed rail service.
This modal shift will drive growth and railcar demand and the years to come.
This growth is in addition to the replacement demand as the fleets and the EU countries, our AG with many cars already well past the time for a replacement.
Greenbrier is backlog and Europe was strong at the end of the third quarter of.
Our focus has now turned to ramping up manufacturing output to meet the market demand with several production lines already booked well into fiscal 2023.
Finally in Brazil, the economy is improving our visibility is good and we are experiencing our highest levels of backlog since we entered the market.
Greenbrier and global commercial team continues to see strengthening and new railcar enquiries and orders and.
And the fiscal quarter third fiscal quarter, and Greenbrier, 1 orders for 3800 railcars totaling $400 million and our backlog as of May 31 was 24800 units valued at $2.6 billion.
Subsequent to quarter and the commercial team has booked nearly 3000 additional orders for intermodal and automotive covered hoppers and gondolas.
I want to emphasize the conversion activity I spoke of earlier is not reflected and the new railcar orders or backlog.
Overall pipelines are strong and I'm optimistic this momentum will carry into fiscal 2022.
Now over to Laurie for more about our Q3 operating performance. Thank you, Brian and welcome to you and the earnings call and good morning, everyone. Today, we're reporting results from operations that are significantly better and our results for the first half of our fiscal 2021.
<unk> produced the great quarter after a challenging first 6 months.
1 thing we've learned over the last 18 months is it resiliency and flexibility are vital and is ever evolving and acceptance.
And while it's too early to declare victory, especially at the Covid variance of our of our flexible operating model is responding quickly and efficiently as lot of safely to the improving demand environment.
We delivered 3300 units and the quarter, including 500 units and for example.
Our Q3 deliveries increased 57% from the second quarter our.
Our global manufacturing performance this quarter shows the operating leverage of higher production rates, which will continue and Q4.
And this strong performance is against the backdrop of adding almost 1000 employees.
Brian mentioned, the significant increase in raw material pricing and the volatility and the supply chain side.
I'd like to highlight the outstanding job, our purchasing and sourcing growth given this.
This growth is ensuring that our facilities have the materials and components to continue uninterrupted production at times that means even collaborating with our suppliers to work with our suppliers to make certain and we have the material we need.
And for our customer.
Over the remainder of fiscal 2021 and into 2022 and the manufacturing team is focused on building high quality railcars, while maintaining employee safety.
Increased card loadings and round traffic also began to benefit our wheels repair and parts business and the third quarter.
Each of the units that comprise our GRS business experienced double digit revenue growth and strong sequential margin improvement.
The margins achieved by Trs and Q3 are the highest since the reintegration of our repair business and 2019.
The GRS management team continues to evaluate our footprint and refining our operations around the quality efficiency and safety with a focus on being a key service provider and so our customers.
The business is prepared for stronger activity levels, and I'm cautiously optimistic that the demand recovery and we've seen so far will continue to gain momentum and for this business unit.
Our leasing and services team had a strong and quite a busy quarter.
GBS leasing with 4 and 130 million and the initial 200 million railcar portfolio and this contributed to the joint venture.
This activity was levered, 75% or 3 to 1 sort of about $100 million was funded from the non recourse warehouse credit facility.
We will continue to find assets into GBS leasing assets become available and in Q4 and beyond and we also have several growth opportunities on the radar.
From a commercial standpoint, GBS leasing at the strong complement to our integrated business model and enhances our distribution strategy. So direct customers operating lessor industrial shipper and our syndication partners, while also creating a new annuity stream attacked the ban and the cash flow.
GBS leasing is consolidated and the leasing and services segment of our financial statements with our partner share of earnings deducted and the net earnings attributable to Noncontrolling interest line.
Additionally, fleet and that information is provided for the leasing and services segment and the earnings release.
Our capital markets team also part of what you're seeing and services syndicate of 200 units and the quarter and yielded valuable operating leverage.
And our syndication model provides several tools to generate revenue and off net margin.
Some are part of our normal course of business and others are available to deploy opportunistically and.
Q3, and we completed and asset sale transaction on favorable terms, which generated increased revenue and margin.
We expect syndication activity to increase meaningfully and the fourth quarter.
Our management services growth also houses and leasing and services is a major store of strategic customer value and we continue to do if the right. We continue to drive growth and this business through a combination of onboarding, new customers and expansion of services within the existing customer base and growth of managed customer fleets.
Including the GBS breathing free.
At the end of Q3, Greenbrier was providing management services and 445000 railcars or about 26% of the total North American fleet.
Positive operating momentum is building as we enter fiscal 2020.2.
Given the strong performance in Q3 and continuing into Q4, we expect to exit the year with growth margin and the <unk> and.
And from the decisive actions taken over the last 15 months, Greenbrier is and a stronger and <unk>.
And our organization and is well positioned and benefit from the emerging economic recovery.
Now the Adrian.
Excuse me now Adrian will provide commentary on our financial performance in the quarter.
Thank you Lori and good morning, everyone quarterly financial information is available and the press release and supplemental slides on our website and green.
Greenbrier is Q3 results were much improved after a challenging first 6 months of fiscal 2021, a few highlights from the quarter, our revenues of $450 million, which increased over 50% from Q2, each operating DNS increased sequentially, although increased production across North America, and Europe as the largest draw.
<unk>.
We achieved month over month momentum coming out of lower production levels and our second fiscal quarter.
Book to Bill of 1.2 times made up of deliveries of 3300 units, which included 500 units from Brazil and orders of 38 hundreds of new units. This is the second consecutive quarter. The book to Bill exceeded 1 times.
Aggregate gross margin of nearly 16, 7% and the quarter, we recognized the benefit from long standing international warranty and contingencies. After the exploration of the warranty period and final resolution of the contract exclude.
Excluding this activity manufacturing margin would have been in the low double digits.
Selling and administrative expense of $49 million.
Increased sequentially, reflecting startup costs from the formation of <unk> leasing and higher employee related costs.
Adjusted net earnings attributable to Greenbrier of $23.3 million or <unk> 69 per share excludes $3.6 million or <unk> 10 per share of debt extinguishment losses.
EBITDA of $53 million or 11, 7% of revenue.
The effective tax rate and the quarter was the benefit of 64%.
This primarily reflects the tax benefits from accelerated depreciation associated with capital investment and our lease fleet, primarily <unk> ex leasing.
These deductions will be carried back to earlier high tax years under the cares act, resulting in a tax benefit and the quarter and cash tax refunds to be received and fiscal 2022.
We also recognized $1.9 million of gross costs, specifically related to COVID-19 employee and facility safety. These costs have been trending down, but we expect to continue spending for the foreseeable future to ensure the safety of our employees.
Greenbrier continues to have a strong balance sheet and we are well positioned for the recovery that is emerging including cash of $628 million and borrowing capacity of over $220 million Greenbrier as liquidity remains healthy at $850 million plus another $149 million of initiatives and process.
And.
And the quarter, Greenbrier began and extending the maturities of its long term debt with the issuance of $374 million of 287, 5% senior convertible notes due in 2028.
Concurrently we retired $257 million of senior convertible notes due in 2024 and May from time to time retire additional 2024 notes and privately negotiated transactions within the limitations of the applicable securities regulations.
As part of the convertible note issuance process, we repurchased $20 million of our outstanding common stock.
The principal balance of the new convertible notes will be settled and cash with the flexibility to choose either cash of share settlement for any amounts paid over par.
The cash interest expense of the notes is about half of the cash costs of high yield notes.
Turning to capital spending leasing and services is expected to spend approximately $130 million and 2021, reflecting continued investments into our lease fleet, primarily at <unk> leasing to maximize the tax benefits I spoke to earlier.
The manufacturing and wheels repair and parts of capital expenditures are still expected to be about $35 million for the year with spending focused on safety and required maintenance spending will be higher in Q4, then and the prior few quarters as we support the increasing production and business activity levels.
While we have extended the debt maturities of a portion of our capital structure. We will continue to opportunistically extends maturities as it makes sense for the rest of Greenbrier as long term debt.
Today, Greenbrier Board of directors announced the dividend of <unk> 27 per share, which is R 29th consecutive dividend.
Looking ahead, Greenbrier expects the fourth quarter to be the strongest performance of the year and addition of a full quarter of increased production rates and increased business activity, creating positive momentum into fiscal 2022.
And now we will open it up for questions.
We will now begin the question and answer session to ask the question you May Press Star then 1 on your time zone is they're using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
Our first question today comes from Justin long with Stephens.
Thanks, Good morning, and congrats on the quarter.
Thanks, and thank you. Thank you.
Maybe to start on the order flow that you saw and both the quarter and the 3000 orders that you mentioned subsequent to quarter and could you break that out by geography, and just help us understand how much of that is coming from North America versus Europe and Brazil.
I would say that the majority of it is and North America for both of the quarter and the order of subsequent.
Okay.
But that's not to say, we did have ordered and both of those other geography zone.
Correct.
Okay.
That's helpful and then in terms of the impact from the warranty and contingency payments.
And I know you said the manufacturing gross margins would've been in the low double digits, excluding that impact, but can you get a little bit more precise on what that dollar amount was or the EPS impact and.
Any thoughts on manufacturing gross margins beyond the next quarter, maybe as we look into 2022 and leverage some of the recent success you've had.
And so I'll start out.
We arent going to get and too precise detail on that situation that was a contract that was a new geography for us to operate and as well as the new customer and it has.
And extended warranty and other provisions that were.
Satisfied in the quarters and allowed us to the release that reserve.
Without it and he said and we said and the earnings release, our manufacturing margins would have been low double digits. We expect those margins to continue to improve the athlete go across this fourth quarter with improved production rates.
We've got.
And very good at being very efficient at running at these higher rates, that's not to say that it doesn't require a tremendous amount of effort and focus because we are bringing back a lot of employees some of which were prior employee, but you still have to go through the refreshed training.
And here the safety protocols, but we would expect.
Manufacturing margins to continue to improve as we exit this year and go into the next year.
And just to clarify that Lori and Youre, saying improvement off of the low double digit manufacturing margin improvement of the $14.5 that you reported.
And thanks for clarifying, Jeff and you know Im conservative at heart and so yes, I would say improvement off of the low double digit margin.
Okay, Great I'll leave it at that I really appreciate the time.
Hey, Jeff and I'd, just like to add to that.
And we view the <unk> the quarter, and then and that particular matter and modernized into the flow the operating momentum.
And really gives us a solid visibility and the backlog gives us the solid visibility into 2022.
So we expect to see this cadence.
Continue and the very very positive I might be a little more optimistic about margins and the Laurie, but that's always the case for some of them.
Okay.
Our next question comes from Matt Alcott with Cowen.
Good morning, Thank you.
You guys mentioned that the fourth fiscal quarter should be the strongest of the year.
And gross margins are obviously expect it to increase but does that also apply to.
EBITDA and EPS, meaning should we expect and EBITDA higher than 52 million and EPS higher than 69 tonnes of the fourth of the scope water.
That's.
The good assumption based on higher deliveries of what we just talked about with margin and the efficiencies that we're having.
And all of our operations.
Got it.
And then my second question is more of an industry broader industry question.
Yeah, I want to try to gauge what the key risks to the manufacturing cycle might be.
And how concerned are you guys about a scenario in which the economy starts to moderate.
The negatively affecting freight demand before steel prices EBITDA would not pose a risk to the translation of the strong inquiry activity and we've seen into orders.
And then any thoughts on this would be appreciated and just trying to gauge of how concerns you guys might be a lot.
And the potential economic and freight moderation, but of course steel prices many of them.
The fact, the translation of into orders.
Hey, Jeff we don't expect day, a lot of moderation.
Economically driven and demand I know there and is concern out there and a lot of.
A lot of talk about this I think it's overblown and the amount of spending and the stimulus that we've had and this economy plus the V shaped recoveries, Duane and bring a lot of momentum and by itself.
I think if we were doing the process. This we'd look at.
We look more at the effects of that demand on the.
And the supply chain and and inflation.
Okay, great. Thank you very much bill.
Our next question comes from Allison <unk> with Wells Fargo.
Hi, good morning, and so.
So great color on the gross margin and I know Bill you had mentioned it sounded like you know you're ramping which isn't a bad thing, but is there any sort of cost and there is something that could temper sort of that pull through on the operating side as we think about that manufacturing starting to ramp that production and at least in the near term.
No.
I think there is a variety of risks and such a V shaped the type of recovery that are just obvious hiring more people training them and bringing them back and keeping them safe I, having no execution blips and it's more of the blocking and tackling things that we have to cope with and and then of course the widened.
And advertised a surge and pricing is that pricing moderates and.
And 2022.
We think it will be more normalized and the last thing I'd say is that.
The change of not a bad at all 4 of company and the leasing businesses with assets because leasing is a traditional hedge against inflation and.
The things we're seeing today makes a used railcar more valuable.
It makes the leash.
And for under lease rates and pushes the muck.
And there are some mixture of benefits and the rest of it as far as the risk of concerns are all manageable.
The steep curve.
Going down and then the steep curve coming up from a 100 year pandemic event.
Got it and then just bigger picture.
Based on sort of the orders that you guys see coming in and just sort of the the conversations that you're having is there a sense I know you know last cycle is driven by energy, which pushed a lot of the replacement of the more commodity based cars out of the way.
Does it feel like that replacement of a pent up demand is starting to flow through I mean, just any color and how youre viewing.
And I would just say high level thoughts on the cycle this time around.
Yes. Thanks, Allison this is Brian Comstock and.
It's a good question.
And what we're seeing in the market today is really probably the 1 of the most diverse order backlogs that I've witnessed and my 40 plus years and the industry. It really is all segments. There isn't a single commodity as you guys know and typical recoveries, there's usually something some impetus that drives that we're not.
Seeing that we're seeing a very very broad based need across all sectors and all businesses, which quite frankly is very encouraging.
Okay.
Ours and the environmental aspects of this and the capacity aspect of just saying the renewal of the fleet. For example, there is theres a lot of cars that are of trading out do the age. We're finally hit some of those big blocks of cars that were built many years ago. So you're seeing a lot of replacement and that but youre also seeing organic growth and inventories are at all time.
Lowe's the PMI index is and expansion territory and as a result of Youre, saying youre seeing people ramp up kind of across North America.
And then.
Kind of a tailwind to all of that is also the continued driver shortages and a lot of the early retirements of experienced drivers that trucking companies implemented during the Covid crisis.
And so youre seeing more conversion to rail or at least attempt to convert to rail so it's a.
It's really.
The good story.
And then if I could that kind of okay. Just 1 other fee net of.
This is all before.
Any ripple effects from kind of the drive for sustainability net zero anything along those lines that the.
And that's a few years down the road and Scott Europe's a little bit ahead of us on that but U S and North America.
And we're very much early days and so we are very optimistic about the next several years.
The already and we're seeing customers that are very interested and that environmental aspect a lot of this of allison's being driven by higher capacity more efficient cars.
Fuel efficient cars and and the current administration is going to be emphasizing that very much and some of the policy things that are going on for example, the tax bill that has.
And just moving through Congress and what effect.
Energy.
I would encourage interconnecting and energy efficient cars and the shippers already making these bigger I think Brian It's fair to say, yes. They are.
The the shippers are demanding larger railcars more high capacity looking at ways and we can do that and it's a lot of it is environmentally driven and so youre seeing all of all aspects of the market kind of come to play.
Understood. Thanks, and it was great color.
Our next question comes from Ken <unk> with Bank of America.
Hey, great good morning, and and solid job on the on the cost side just great to see.
That and then inflection.
Bill can you talk about all of our I guess, maybe Lori you mentioned the improvement in margins going not only through the fourth quarter, but into 'twenty..2 how should we think about the rebound relative to seasonality should we still expect kind of your traditional weaker first half or does the return of growth kind of work through that you just see kind of acceleration.
And the production and and the benefits or Alternatively whats your thoughts on the scaling of cost as that business comes back.
Great question, and I would say that we do expect I don't see anything and what we're looking at from a production perspective that makes me see of huge blip or a huge dropbox the.
The expectation and what we with lots of <unk> and the new car side of our market is just a steady step up and then maintaining a steady pace as opposed to.
And the significant ups and downs and so I know that our commercial team and our manufacturing teams have been working very closely.
To make certain that we are bringing that production back and a modest pace and then maintaining consists.
Consistent level, so I don't see any again big spikes or Dropbox can as we move forward into 2022.
And 1 of the things of that affects margin of course of cost and we're focused very much on cost, but the pricing of railcars and say what.
The steel pricing going up with capacity of more limited.
Limited I mean the.
The larger players.
Having the whitish mix of the car designs should give more pricing leverage and the next several quarters, we're seeing that already and the some of the.
Activities and the market so its moving toward.
And our nationally and the trough of the strength goes to the buyer, but and AR and.
And of rapid upturn and the sustained.
The industrial.
Come back.
The balance is doing the mood show of pricing should include and lease pricing and I should should rise also.
To the degree we reach of different plateau and.
Input costs like steel.
And other things.
Great just to clarify Lori the answer there Laura youre not expecting them the traditional seasonal.
Large downtick in the first half of it's going to be more maybe balanced and into 'twenty 2 is that what you're suggesting.
We're not yet we're not giving explicit guidance and just the based on every once it's kind of I think what happens is sometimes the worn out.
As we close out our year of that I'm not expecting that to happen I think everyone is rare and to go and I expect that to to maintain and pace.
Great. Thanks for that clarification, and then my second 1 would be just on on kind of your feel I guess the return of facilities does every facility now back up and running or the are there still startup costs you need to engage to get any of the plants operating and maybe suggesting the answer you gave before what's the the ramp of of kind of Colorado.
Orders and in the other regions are you seeing that stabilize or are you seeing those accelerate like you talked about and North America.
Let me talk to the European market and I just returned from some of the customer visits over there and that market is being driven as Brian.
And Brian mentioned by a very sizable stimulus package and there's been approved and it's.
I think it's 3.4 of $5 billion the euros.
There is a really big push toward.
Cars that are more energy efficient so that demand is strong and we.
Very good order visibility and.
And Europe.
I think that Brazil is.
As a a market that has got so much of a potential and as the economy improves and we got an extraordinarily good year with orders down there.
Over the last 12 months trailing and it's a.
So overall, we see a strong demand and.
And the international sphere, and Theres still opportunities and the middle East and the GCC.
And your thoughts on the plants are they all up and running so you're you're good to go are there startup costs there.
Well the.
It's really just the there's.
And there's not startup costs of elections, there is the sluggishness of bringing back.
The facilities that have not been operating it.
Normalized capacity and it's just shy of of lag of slow, but I think we're well on our way and our European properties too.
Really half of a tailwind.
And as we work as we have worked out a lot of those and we're working them out.
Great I appreciate the time and thoughts thanks Patrick.
The final question today comes from Steve Barger with Keybanc capital markets.
Hey, good morning.
Mark can you.
Help us think about the range of deliveries and <unk>, you've talked about it being the strongest quarter of the year, but what's the magnitude of production and you expect to see sequentially.
Great question.
And I'm trying to think about how the afraid of it appropriately.
I think we would say that we see a pretty strong step of.
Probably maybe not quite of 50% increase but of.
Somewhere in that neighborhood is what we would see from Q3 sequentially and again. These things are at the very fluid situation. I mean, there is I can't emphasize enough 1.
And 1 of our procurement and has done to make certain that we've got the raw materials and place to be able to deliver these car. So that's the 1 thing to put together a plan and its another thing to execute against it so again getting the material in place getting our employees and place and being very mindful of the coldest areas and how they might.
Impact of our operations.
And also the natural timing of syndications, which sometimes could push from 1 month of town that are either in or out but day.
Making a more general statement I we've had.
Sequentially and I'm on.
And basis stronger and stronger revenue. So it's gonna be top line driven as we go into move into.
The net.
Yeah.
Fiscal year, we're seeing.
We're seeing a trend of.
Positive.
Alright, great.
Very positive trend in revenues and all of the other activities.
The downside of Union Pacific and Great slogan for years I loved it and as we can handle it and our operating people believe they can handle the sure. There are things that we got a handle but we can handle it.
Yes.
So that suggests maybe 5000, plus or minus and and Lori going back to that prior question and it sounds like you don't expect a big step down and production and the first half of next year is that a is that fair that is very fair statement.
And just thinking about the Ford model as it relates to the tax rate and SG&A first you've got the tax benefit.
And all year, you'll get that and <unk> right and does that stretch into 'twenty 2.
So we will get.
We will continue to get a tax benefit into Q4 and not not at the same rate that <unk> seen earlier in the year, but there will still be some that were well the beneficial to our rate and the cares benefits for us well will not continue into next year. So this will be something but we will continue to get a mic.
The accelerated depreciation and the cash benefits just not this incremental ability to take losses back.
And what we mean by next year, let's define next year and our first quarter of.
2022.
We will have some tax benefits from the cares.
And I believe of no it'll and with our fiscal year, we will continue the guests the cash benefits of of the.
Accelerated depreciation and what does the cares act expire and thought it was and at the end of the calendar year.
I might be.
And it's based on our tax share okay. Okay, Yeah got it and.
So just from modeling purposes should we think youre going back to I I've got 27% is that a reasonable number for tax rate on the income statement next year.
For next year yet.
Okay, and and also you know you had favorable SG&A spending this year due to cost actions, which were certainly necessary.
Should we think about SG&A and dollars for next year.
And I don't think we're ready to give guidance on SG&A from the dollar perspective, we would expect those dollars to increase and as our customers.
Yes.
Open up their offices, and we get and more I'm traveling to visit with our customers I will say that our teams are more aware of being able to utilize technology to have some of those meetings, but the face to face means our very important I would just the and bundling.
More of that travel.
So that you're not incurring as much. So I think that the teams are all very focused on maintaining them.
Some level of discipline around costs, but I would see some of those continue to creep up and then the other thing that we've all heard and read about is there is an employee of shortage.
So we're very mindful of our work force base and making certain that we are adequately compensating our employee to retain the value of that we have and generally we look at this and.
And a business that is the cycle.
And more in terms of percentage of revenue.
Even though the cost the cost containment of been really effective and Lori has really driven this operationally.
And he is really end of it all of the working parts.
<unk>.
We should return to a more normalized falling of percentage of revenue.
And with G&A.
And we can expect however to Vietnam.
A plateau much better than we were because we have really taken a lot of inefficiency and and there'll be other reforms that will come with this this V shape recovery so.
Bottom line takeaway and the percentage of our net G&A is of the revenue should be.
Become come down and perhaps it would be better than historically.
I appreciate that and since I'm last I'll I'll, Let me ask 1 big picture question for you Bill or whoever.
Potential Bud and executive order challenging anti competitive practices and the news today.
And it could come as early as today I guess, but do you think this is a net positive for equipment builders or what is your view on what that means.
I believe it's neutral and it ought to be of concern to the railroad and the railroad franchise and there shouldn't be any secret that.
And that the administration and the.
The members of certain members of Congress are concerned about and our <unk>.
<unk> and <unk>.
I think a trend towards consolidation and the railroads would be.
Something that would.
And we would hope would be tempered.
So I think the there's more of a threat to the railroad system itself, but it's not really of threat as much as it is.
Just something they have to deal with it and theyre dealing with it very professionally.
And I think that in terms of the STB and interpretation of everything it will be it'll all be okay.
Okay and and <unk>.
Neutral to 2 equipment, 1 way or another.
And so it's another thing to digest and as you look out there and who knows it's a there's so many uncertainties and this the last week.
The 18 months that we can't really.
Deal with it right now it's an issue of the railroad should ponder carefully.
I think they're just receiving a signal of a couple of very influential people in the Pacific Northwest and.
The current Congress and and key positions and.
I would pass some of their views and they passed on the views to our railroad friends. So I know, they're listening to them and.
I think it's just the.
Concerned about the strength of.
The big and that's kind of what we would expect and.
And the current administration.
Understood. Thanks.
Thank you very much of everyone for your time and attention today and if you of any follow up questions. Please reach out to us directly have a great Friday. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.