Q4 2021 Greenbrier Companies Inc Earnings Call
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Hello, and welcome to the Greenbrier companies fourth 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 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 Eileen.
Good morning, everyone and welcome to our fourth quarter and fiscal 2021 conference call.
Today, Greenbrier announced that effective March one our founder to affirm it will transition to the role of executive Chairman and the appointment of Lorie to Korea's as Greenbrier next CEO and president.
In addition to Bill and Lorie, Brian Comstock Executive Vice President and Chief commercial and leasing leasing officer, and Adrian Downes Senior Vice President and CFO are participating in today's call.
Following our update on Greenbrier is performance and our outlook for fiscal 2022, we will open up the call up for questions.
In addition to the press release issued this morning additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website.
Matters discussed on today's conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Throughout our discussion today, we will describe some of the important factors that could cause greenbrier as actual results and 2022 and beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier.
And now I'll turn the call over to Bill.
Thank you Justin and good morning, everyone.
As Justin indicated earlier today, we announced our board of directors elected Lorie Korea's Greenbrier as current President and Chief operating officer to be the company's next Chief Executive Officer, a position she will assume on March one.
'twenty two.
L'oreal and I, along with the board have been working towards this goal for several years.
Together, we built a very strong talent bench.
Very pleased with the teams we have in place for the future and I'm also pleased with the strategy that Lorie has evolved which I think will take the company to hire piece.
I want to take this opportunity to congratulate Laurie Laurie I know you will do an outstanding job as Greenbrier as next CEO and I look forward to working with you.
The transition I'm very proud of you everyone joining us today should understand our joint commitment to ensure the smooth as possible transition.
When lorie becomes CEO I will concurrently assume the newly created role of executive Chair until September 2022, when I will retire.
An executive position.
In this role my focus is on continuing to work with our board of directors as well as supportive lorie and our transition to CEO.
I will remain as a board member until 2024.
This transaction transition is coming at an important and exciting time for the company as.
As we've discussed over the past several quarters.
Recovery in our end markets is gaining momentum.
Our fiscal fourth quarter with Greenbrier strongest quarter of the year.
Greenberg fiscal fourth quarter was in fact, our fifth quarter in a row with increased new railcar order activity.
It was also Greenbrier as third consecutive quarter with a book to Bill ratio over one leading to a book to Bill of 133 for fiscal 2021.
The spread of the Delta variant has created challenges worldwide.
Our business in society and it has made the pace of the recovery partly unpredictable.
It continues to impact Greenbrier on a personal level.
Vaccinated and unvaccinated individuals' across our workforce.
Experienced isolated COVID-19 infections.
During the fourth quarter I was one of them along with my wife, Jane Despite being both double vaccinated.
Fortunately our symptoms were mild when we have fully recovered.
Thanks to our COVID-19 safety practices, we have avoided widespread spread outbreaks at all facilities.
Sadly however, we recently lost another colleague Pedro Gonzales.
Pedro was an 18 year veteran of the G. R S, Kansas City will shop.
He is a.
Member of the Greenbrier family, we've lost to COVID-19.
We are supporting his family during this difficult time, we're urging people to get vaccinated.
And to keep social distancing.
The health and safety of our employees is Paramount.
To maintain a vigilant posture, particularly as we integrate new manufacturing employees in response to expanding production capacity.
Of course, the virus is not the only issue to be faced global markets have been impacted by labor shortages and supply chain disruptions volatile commodity markets and other disruptive headwinds.
These factors persist into Greenbrier as fiscal 2022.
And this is all in addition to what I would term the regular challenges for our manufacturing maintenance and leasing business as we transition for them.
Low production.
After a rapid downturn and then a rapid.
Spike up unemployment rates.
Higher employment and greater levels of production activity.
So this is an environment demands a disciplined strategy we've been here too since the outset of the.
Pandemic. It also demands our best efforts.
Specifically our strategy has been to first maintain a strong liquidity base and balance sheet.
Next to survive the COVID-19, economic crisis by safely operating our factories, while generating cash flow.
Everyone knows that upturn cashes required to replenish working capital.
And for growth.
And finally, we needed to prepare for and manage well.
During the economic recovery and the forward momentum in our markets, which is now well underway.
Our actions have been purposeful and successful.
As a result of a strong team effort.
Our flexible approach and scalable manufacturing capacity are both central to Greenbrier as a response to an improving market outlook.
The demand outlook is strong.
Strong in all of our markets globally, notwithstanding the impact of elevated steel and other input prices to our customers decision making processes.
I'm proud of how seamlessly our teams are ramping up to 'twenty two production lines by the end of November from just nine lines.
Operations at lower rates of production only nine years ago nine months ago I'm sorry.
This phrase this phase of our strategy as presented novel challenges and operational risks as we add a large number of new production lines, many involving product changeovers and adding new people.
Safety availability of labor and supply chain constraints are key priorities for Greenbrier do manage as production increases.
Importantly, our liquid liquidity position remains strong maintaining it.
It remains a top priority.
We're balancing efficient management of working capital with protecting our supply chain and ensuring production continuity.
Before I conclude today and hand, the call over to Laurie I'd like to remind our listeners that we do not expect that a market recovery.
Although a smooth and straight line.
Our industry is still recovering from the shock caused by the pandemic.
Certain laser uncertainties and obstacles do you remain it is clear however is that our strategy has produced and is producing results.
And I believe we are well on the other side.
We've got a bit.
We're also pleased to recently increase the scale of our leasing fleet through our GBS leasing joint venture.
Our lease investment provides greenbrier tax advantaged cash flows it.
It reduces in the future will continue to reduce exposure to the inherent cyclicality of freight.
Transportation equipment manufacturing.
And other sources.
At G. Bx leasing we are building a long term annuity stream with solid credits longer and balanced maturity ladders and product versus well.
While doing so we were foregoing some immediate revenue recognition in the short term to build for.
For the future.
All factors considered Greenbrier is extremely well positioned to navigate the months ahead and deliver further value to our shareholders.
Before electing lorie as CEO, we thought it important that she sketch out her strategy for the future.
She spent four or five months thoughtfully, putting together that strategy.
In the future, we'll be happy to share. The changes are that this will bring but as a headline we look to technology diversification and services.
Other ways to take the cycle out of the inherent manufacturing business cycle.
And girlfriend, the future with that I'm pleased to turn the call over with my congratulations to our next CEO Lorie to Glorious Laurie. Thank you Bill and good morning, everyone.
I want to express my appreciation to Bell and the Green Bar bar for appointing me Greenberg next CEO.
I'm honored and humbled to follow them as only the second CEO in Greenbrier history Bell.
Bill and I have worked together towards this goal for some time and I feel well.
I look forward to continuing to work with Bell on this transition and to build on our strong established foundation he created with our senior management team.
Today, we're reporting results from operation that continued the momentum from Q3.
Volatility seems to be the new norm and Greenbrier is employee relative to the challenge.
The resiliency flexibility and focus allows Greenberg Ernie Great result, in addition to providing excellent levels of service and the production of quality railcars.
Supply chain and labor shortages in the United States, where two of the most notable.
Fortunately common challenges we're managing today.
In the corner Greenbrier delivered 4500 railcars, including 400 units in Brazil.
Q4 deliveries increased 36% from Q3.
The manufacturing successful ramping of production over the last six months.
This is our highest level of production and delivery since fiscal 2020.
We're pleased to see another quarter of double digit growth.
Our global purchasing group continues to do an outstanding job, even as disruption spread from basic raw materials and component.
Horizon, Hain and industrial gases.
Our global sourcing team has rapidly responded to changing supply dynamics and continue to take measures to ensure we avoid significant production delay or line introduction.
And a lot of hiring is currently challenging in the U S. We're fortunate to have a strong and talented labor pool in Mexico, allowing us to add over 500 employees during the quarter.
And over the last nine months, we've added nearly 2000 employees in our manufacturing business.
Safety continues to be a priority as we bring back our workforce in a measured manner.
In our North American network maintenance and parts operation or Greenbrier around services, we continue to make improvement and how we manage our operations and interface with our customers including lapping.
Our continued focus on safety resulted in a record setting Q4 and full year of safety performance.
These positive strides were somewhat offset by labor shortages impacting operating efficiency and an obsolete inventory adjustment in Q4.
Excluding the inventory adjustment gross margins would have been similar to Q3.
I'm confident we'll be able to leverage the improvements made in GRS for 2022 and beyond.
Our leasing and services group, which includes our G D ex leasing operation.
Another busy quarter.
Nearly $70 million of railcars were contributed into gtx leasing in Q4, bringing the total market value of the asset in fiscal 2020, one so almost $200 million.
Subsequent to year actually acquired a portfolio of 3600 railcar a portion of which will also be healthy GB athletes.
This purchase provides commodity age and credits.
Our Gtx leasing fleet is valued at $350 million at the end of September.
The game on that.
As a reminder, GBS leasing is currently utilizing a non recourse warehouse credit facility a portion of which we expect the terminal in the next few quarters with more traditional long term railcar financing.
Our enhanced listing strategy will provide revenue and tax advantaged cash flow offsetting the cyclicality of railcar production.
Our capital markets team syndicated a thousand units in the quarter and continues to generate liquidity and profitability.
In fiscal 'twenty to 'twenty, two we expect syndication activity to increase meaningfully as overall demand and production levels right.
And in the next few weeks Greenberg will be publishing its third annual ESG report.
I'm excited about the progress shown in the report on a variety of area and congratulate our internal ESG team for providing a valuable valuable summary of how Greenbrier is serving our stakeholders.
And looking ahead, we continue to see positive momentum in fiscal 2022.
Emerging from an economic recession, and cyclical trough can be challenging in the best of times.
But what the ongoing impact of the pandemic.
Labor shortages and supply chain disruption. This year is gonna be a completely different type of challenge.
I'm pleased that we have talented employees and a strong management team with significant industry experience to guide Greenbrier through the next few quarters.
I remain excited about the long term opportunities for Greenbrier and proud to be leading into the next part of our journey as a company.
And now Brian Comstock, who will provide commentary on the railcar demand environment.
Thanks, Lori and good morning, everyone.
While it feels like much has occurred over the last three months overall the economy continues to be trending in a positive direction and economic indicators point to a sustained recovery in rail.
While this recovery seems to be more unpredictable, we continue to think about it as a sharper V shaped recovery with a sustainable crest.
Now instead of discussing industry statistics.
I'll focus on a few important things from 2021 and how we're approaching 2022.
And Greenbrier is fourth quarter, we had a book to bill of one five reflecting deliveries of 4500 units and orders of 6700 units. This is the third consecutive quarter of growth and our book to Bill ratio.
For fiscal 'twenty, one Greenbrier generated orders of 17200 units and deliveries of 13000 units, which equates to a book to bill of one three.
International order activity accounted for approximately 30% of this new railcar order activity.
New railcar backlog grew by 2000 units or nearly $400 million of value to 26600 units with.
With an estimated market value of $2 8 billion.
Operations in each continent, we operate in are carrying backlog that supports production well into fiscal 2022.
Notably we ended the fiscal year with a record backlog for Europe, where we have many production lines booked into physical 2023.
Greenbrier is leased fleet utilization ended August 21 at roughly 94% and has grown to over 96% year to date.
Additionally, we are seeing improved lease pricing and term on all new lease originations and lease renewals.
We have seen recovery in all of our markets.
We have also seen significant increases in raw materials components and shortages of basic supplies.
We are seeing traffic congestion throughout the network.
Partially at the ports.
Were a record setting number of ships are waiting to be offloaded.
Underlying the fact that when you shut down large portions of our global economy, turning it back on is not as easy as just flipping a switch there will be disruptions and unintended consequences.
However, we continue to see growth opportunities in our global markets.
Europe is beginning to see the benefits of a broad scale economic reforms to address climate change.
We are in the early days of a modal shift to free from polluting and congested road travel to efficient higher speed rail service.
We believe this model shift will drive significant growth in railcar demand in the years to come.
This growth is in addition to replacement demand as police in EU countries, our aging with many cars already well past the time for replacement.
Equally as exciting as the future of the North American market right. Now we are seeing a return to replacement demand levels.
But imagine what will happen when the United States, followed a similar path as Europe.
Great rail is one of the more sustainable solutions because of its environmental friendliness.
Similar to Europe.
We see an extended period of substantially higher demand.
It involves one of the largest freight rail fleets and systems in the world.
With all that being said Greenbrier as global commercial team is focused on not only the basic blocking and tackling of new railcar orders leasing and service solutions, but also on continuing to develop a more comprehensive and integrated approach for our customers globally.
Now over to Adrian for more about our Q4 and full financial performance.
Thank you, Brian and good morning, everyone.
As a reminder, quarterly and full year financial information is available in the press release and supplemental slides on our website.
<unk> Q4 performance represents the strongest quarter of our fiscal 2021 year as a result of the continuing the momentum we've been seeing in our end markets.
I will speak to a few highlights from the quarter and good luck.
General overview of fiscal 2022 guidance.
Highlights for the fourth quarter included revenue of $599 2 million, an increase of over 33% from Q3.
Aggregate gross margins of 16, 4% driven by stronger operating performance as a result of increased production rates syndication activity and lease modification dates.
Selling and administrative expense of $55 4 million increased sequentially as a result of higher employee related costs.
Adjusted net earnings attributable to Greenbrier of $32 9 million or 98 per share excludes $1 2 million or <unk> <unk> per share of debt extinguishment losses.
EBITDA of $70 4 million or 11, 8% of revenue.
The effective tax rate in the quarter was a benefit of 14, 5%. This reflects the tax benefit from accelerated depreciation associated with capital investments into our lease fleet.
These deductions will be carried back to earlier high tax years under the cares act, resulting in a tax benefit in the quarter and cash tax refund. We received in fiscal 2022, I'm very proud of this close collaboration between our leasing impacting that maximize the benefit for Greenbrier over the course of fiscal 2021.
In the quarter, we recognized $1 6 million of gross costs.
Related to COVID-19 employee and facility safety in.
In 2021, we spent nearly 10 million, ensuring our employees and facilities could operate safely.
The quarter also included an unfavorable adjustment for labor and materials in our leased nine months as well as unfavorable excess and obsolete inventory adjustments I feel just Karen parks.
Adjusted net earnings for the year attributable to Greenbrier was $37 2 million or $1 10 per share on revenue of $1 7 billion and includes $4 7 million net of tax are booking per share of debt extinguishment losses.
EBITDA for the year was $145 2 million or eight 8% of revenue.
Libre has a strong balance sheet and liquidity of $835 million.
Comprising cash of $647 million and available borrowings of $188 million, we are well positioned to navigate the market disruptions.
And we expect to persist into calendar 2022.
You may have noticed the taxes favorable has grown to $112 million as of August 31, we expect to receive most of this refund in the second quarter of fiscal 2022.
This is in addition to Greenbrier has available cash and borrowing capacity I just mentioned.
In the fourth quarter, Greenbrier completed almost $1 1 billion of debt refinancing extending maturity of our domestic revolving facility and two term loans into 2026 and 2027.
In addition to the G box leasing railcar warehouse credit facility waiver as legacy lease lease is partially numbers with a 200 million secured term loan while the remaining fleet off that serve as collateral and Greenbrier is $600 million U S revolving facility.
Also in the quarter, we repurchased an additional $20 million of senior convertible notes due in 2024, and then from time to time retire additional outstanding 2024 notes in privately negotiated transactions within the limitations of applicable securities regulations.
Overall in fiscal 2021, Greenbrier completed $1 8 billion of financing activity, including $1 5 billion definitely financing and the creation of the 300 million GBS leasing warehouse credit facility.
We have effectively doubled the maturity profile of our existing debt at favorable interest rates and removed the 2023 refinancing risks.
<unk> Board of directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long term shareholder value. Our board believes that our dividend program enhances shareholder value and in fact, some doctors.
Today, we announced a dividend of <unk> 27 per share, which is our <unk> consecutive dividend.
Based on current business trends and production schedules, we expect <unk> fiscal 2022 to reflect deliveries of 16000 to 80000 units, which include approximately 1500 units from Greenbrier Maxion in Brazil.
Selling and administrative expenses are expected to be approximately 200 million to $210 million.
Capital expenditures of approximately $275 million in leasing and services 55 million in manufacturing and a $10 million in hill's repair and parts.
Gross margins lower in the first half of the year, reflecting a few primary factors.
Production reflects more competitive pricing taken during the pandemic nine to 12 months ago.
Early in the year, we will have some operating inefficiencies due to product line changeovers and continued production ramping as production rates stabilize operating efficiencies will increase benefiting margins.
More production is scheduled for syndication our leasing fleet activity and will be on the balance sheet until final disposition is decided.
We expect margins to improve over the course of the year as we work through the less profitable mix achieved production efficiencies and other factors.
We expect deliveries to be back half weighted with a 40% from 60% back half.
As Bill mentioned earlier on the call the introduction of GBS leasing and our shift in leasing strategy has an impact on our production and delivery activity.
Historically, we would build a railcar with Italy and syndicated a few quarters later.
Now in addition to direct sales and syndication activity a portion of production will be capitalized into our leasing.
While this activity reduces revenue and margin in the near term it creates a long term stable platform of repeat and cash flows and the income and as part of our strategic shift to smooth the impact of the new railcar demand cycle on our results.
In fiscal 2022, approximately 1400 units are expected to be built in top of lives into our lease be easier.
These units are not affected and the delivery guidance provided.
Consider a railcar delivered when it leaves greenbrier as balance sheet and is owned by an external third party.
We have an experienced management team that has a track record of success in identifying and taking advantage of opportunities as well as managing through the challenges and doctors we described earlier.
As a result, we are optimistic that our operating momentum will continue into fiscal 2022, albeit in a nonlinear fashion.
And now operator, we will open it up for questions.
Yeah.
We will now begin the question and answer session.
I ask a question you May press Star then one.
You are using a speaker phone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
And again, please limit yourself to only two questions.
Our first question today will come from Justin long with Stephens.
Thanks, Good morning, and Bill it's been a great run lorie, a well deserved promotion so I'll start by saying congrats to you both on the transition.
Thank you Kevin good question.
Maybe to start with one on the delivery guidance for 16 to 18000 units. This year how much of that is secured in the backlog today and I know you called out the 500 units for Brazil, but could you also speak to the number of deliveries youre expecting in Europe.
So and our delivery.
Morning, Justin This is Justin our delivery guidance.
Between 80% to 90% of that is already included in our backlog at 831, and then or European expectations are kind of in that 4000 to 4500 range. So that's.
That's kind of the current expectation, although I think.
If you talk to our European management team, they would be looking to figure out ways to increase production.
Demand is strong over there.
Okay.
That's helpful. And then secondly, I wanted to ask about the leasing and services segment. We saw a spike this quarter any color that you can provide around the tailwind that you called out I think it was higher interim rent and lease modification fees anything that was kind of one time in the quarter and maybe you can help.
Let's think about modeling this segment in fiscal 2022, just because of all the moving pieces with PBX sleeping in syndication activity.
That's a great great question, and I think that I wouldn't characterize anything that occurred in Q4 as one off or nonrecurring. It's just a part of kind of our business where it can.
It's more a matter of timing and at times.
I think going forward I mean, as you build the lease fleet it is a little bit of a.
Slower build on revenue it takes a while for that to really gain momentum we're very pleased with the.
Progress we've made this year, but.
It's going to take.
You know, we think that we see an improvement and some modest growth on the top line revenue, but at the same time, our margin profitability will be.
I would say similar to what we've seen in past years in that 50% to 60% range, but ultimately it's a I would say I think that we are going to work to have a stronger year than maybe what we're guiding to right now and we will.
See what we're saying in the year right and I would just add on to that but yes, I think we're taking a a modest approach to growing the number of railcars that we have on our balance sheet.
And as Justin said, it'll take some time to offset the onetime pop that you might get from selling those externally, but we think for Greenbrier as long term, having that repeatable revenue that stable cash flow will benefit us as that fleet growth.
The other thing that I would add when you're asking about deliveries is.
We've been doing this for a while and we are very focused on the safety of our workforce.
Don't want to put too much pressure as we're adding all these additional lines to also be increasing production rate them.
In a way that.
Really isn't the safest way possible for us to operate I know that the our commercial team and our manufacturing folks they've got a lot of opportunities in ways that we could but right now we're taking a more modest approach.
And we can update that as we progress through the year and see how we get traction.
And Lorie, just specifically to the modeling question on leasing.
We do expect a we seem to have a sizable three year impact on EBITDA. It's already beginning to grow rapidly is beginning to rival some of the other smaller business units already we are 75% again above the targeted.
200 million when you count the portfolio purchase so we do expect this to be.
A significant business.
As we have in the last couple of quarters, we'll be breaking out information on the leasing business so that it.
We'll have more transparency.
On leverage.
Earnings.
Alright, thanks, everyone I appreciate the time.
Thank you Justin.
Our next question comes from Matt Alcott with Cowen.
Good morning, and Lorie and bill congratulations on the upcoming transition.
Justin I think you said.
80% to 90% of the expected production for fiscal 'twenty two was already in the backlog.
<unk>.
But the demand environment, that's pretty strong and an improving are you guys.
Factoring in.
Very modest orders throughout the year of 422 delivery.
Because you are hitting you know.
Close to maximum production capacity after the right sizing you've done in the last couple of years.
I'm going to hand, it over to Mr. Comstock, who is a living this daily.
Commercial banking with us and thanks for the question Matt.
Right now I think as Justin said that currently we're looking at probably 80% to 85% of the orders are in the queue, but we continue to look at flexibility in our manufacturing lines and how we ramp those lines up to accommodate customers and customers' needs.
I think one of the important factors. If you think about the future is we're seeing we're seeing customers willing to push out orders into 2023, and even talking into 2024. So from our perspective, we're getting good long term synergies on some core lines.
That will take us well into the future. So it's really kind of a combination of continuing to field orders, which are continue to be very robust and diverse.
And accommodating as we can but also you've got a lot of people that are looking for long term sustainable production, which is a positive trend for us can you talk to pricing and lease rates.
While you're on that subject and by Q, you don't mean in the quarter you mean.
The pipeline correct business, Yeah, correct correct, Yes, I think as I said in my opening remarks on the leasing side and I think others have reported this as well we continue to see positive momentum in <unk>.
Lease pricing and probably more importantly in lease term.
As a good opportunity for the industry and pricing in general there has been good discipline in the industry recently, and we're seeing a margin enhancement as orders progressed through the quarter.
That's very helpful. Brian because you addressed part of my follow up question Salt.
So you're producing.
Production guidance implies at the midpoint about 31% growth.
Which is pretty solid but did you guys have a sense of how much high steel prices as well as supply chain disruptions.
Limiting the growth.
Gross production potential.
Potential.
Yeah, Brian Good Matt Great question, and it's something I'm sure that a lot of people are interested in today, we haven't seen any negative impact due to the high steel prices and in theory, if you listen to all the great forecasters out there, we're probably near peak.
At least we hope we're near the peak.
Cycle of the high steel prices.
And so far we really haven't seen any pullback.
At this stage.
Okay, great. Thank you very much.
Our next question comes from Allison <unk> with Wells Fargo.
Hi, good morning, and I kind of again the current got still you know you certainly don't.
Long Foundation business and talent and certainly leading Greenberg in great hands. So best of luck to you both on that.
With that Lorie I know Bill had mentioned that you have your own strategy that you're you're coming forward with.
Any high level thoughts just as you kind of look at the portfolio today any businesses that maybe you'd think needs a little bit more attention here that you want to focus on in the earlier stages, you know any color in terms of your strategic direction here.
Thanks, Alison and thanks for the vote of confidence.
This time I don't think I really want to start unpacking, what might be our strategy going forward I want to make certain that we do that in a more deliberate fashion.
A little bit further down the line, we have grown an amazing company.
Over the last 40 years, and we've done some really great things, there's always opportunities to look at things through a different Lynn and think about how we might enhance thing I think Brian mentioned also focusing on how we.
Integrate that or maybe some of our operations and how we go to market to be a better solutions provider for our customers.
Got it that's helpful. And then I just wanted to go back to Justin's questions on the leasing and services side benefit of lease modification fees can you guys give us any color and I guess, how impactful were those fees any way to help quantify that to some extent kind of what they were and what the impact was.
Well I think.
As we've spoken about for years.
Actually even decades, Greenbrier works with our customers to solve their problems and so we've had customers that have needed to make changes to lease terms and make changes to existing contracts and we worked with them and sometimes it's a matter of it.
It does require that we are made whole for if.
If we are changing contract terms and so at the end of the day it is a.
Benefit that has minimal cost attached so it flows through the margin 100%, but at the same time, it's not something that is a nonrecurring. It's just a normal part of business, but it was a benefit in the fourth quarter.
And one of the reasons why our leasing and services margin was a little higher than it has been historically.
Got it thank you I'll pass it along.
Our next question comes from back on majors with Susquehanna.
Yeah. Thanks for taking my questions I, just wanted to clarify with the new accounting and elimination in capitalizations of cars. When you say 16 to 18000 deliveries globally.
And the one point for capitalization.
You're implying your production rate of 17, eight and a half to nine and a half thousand.
Yes.
Okay I just want to make sure that was added. Thank you it maybe bigger picture I mean theres been so many changes.
Over the last you know.
Five six years, both in the market and.
In your portfolio with with acquisitions and in this lease vehicle and that becoming a core part of the story.
Can we take a cut at it it's some of the key inputs if we weren't.
The mid cycle earnings power of new Greenbrier I understand that you probably don't want to throw an EPS number or a range out there, but but you know things that we should consider on an on on how the business should be doing when the market is humming at a at a at a steady state. Thank you.
Let me take a shot at that and then lorie and and even Brian may want to step in and a comment.
And thanks for the comment about the changes in the last five years the company has dramatically.
I'd grown and changed I think if you look at the strategic drive behind Us.
A multi continent now.
In the North American market, we have come a long ways from having a single factory two production lines to multiple facilities in the United States and in Mexico.
A strong.
<unk> market position in every freight car.
But we want to be and in North America, we have a very strong.
Market share.
What does that mean, what does it mean from a business perspective. It means we see a lot more opportunities and we are at the table, where a place at the table and every transaction that comes up and that's not just in manufacturing. It's also in services Lorie mentioned services and it.
Gration.
Service design.
Leasing all of this fits together.
On a go to market strategy that gives us a lot more leverage and that should translate into higher margins.
Greater volumes and more profitability.
<unk> matters and we have achieved scale over this last five years and we will strive to continue to do that.
Laurie.
Lays out the strategy that she's working with our team on now.
And of course I would.
Hi.
I would say it would be premature for her to say much about that because some of the people sitting around the room, if not yet had the opportunity the board of staff had to.
To review that in depth, but we'll be doing it in the next several months and I will say more about it but it's so it's a bigger stronger platform and I think it.
Bodes well for.
The net.
That we've got out there to capture opportunities translate them into value.
Yeah.
Our next question comes from Steve Barger with Keybanc capital markets.
Hey, good morning, everyone and yes congratulations.
Congratulations to everyone, who is facing a change.
Okay.
Just to level set expectations, if I work through your initial guidance. It normally Sps in your SG&A guide and I don't make big changes to dispositions or minority interest. It looks like initial EPS would be around $2, maybe a little bit less am I thinking correctly about that or am I missing something.
I don't think we're ready to get into that that level of guidance for that granularity at this point.
I think you know.
Bearing in mind the continued shifting in the landscape.
We wanted to provide a little more color on our fiscal 2022, but at the end of the day it's a.
There is a tremendous number of moving pieces, both positively and some things that we arent aware of so at the end of the day from Mr. Comstock perspective, you're getting regular feedback and conversations about how can we increase throughput on the flip side, we continue to have supply chain issues labor shortages in the U S. So it's trying to find.
The balance of.
How can we provide some additional clarity.
For you guys, who were having to build models and but also.
Put out something that is reasonable and I would just say I mean, we are empathetic to the fact that you guys are trying to build a model that I would expect that you appreciate that we're running a business that isn't just about the quarter or the year and we're focused on all the different things that I think the last 18 months has certainly shown us.
Try not to be too confident that you know what's going to happen there have been too many things that have gone on I would hope that you would have some.
<unk> for the fact that this team has been at this for quite some time, we've got a great network of shops, whether it's for maintenance or building new cars, they've got a great commercial team and we are focused on.
Driving more value to the bottom line and we'll be doing that as quickly as we can but we also want to make certain that we take care of our workforce and our customers.
Let me just add something there.
This business is really interesting and is very resilient.
The mere volume of orders can drive momentum overhead absorption. If you can increase production on a single line from two per day to 10 per day.
And as you see the order pipeline filling up one has to be really.
Optimistic about the ability to build on the operating momentum.
The amount of that momentum is.
The environment, we're in and perhaps we're being a little too cautionary about talking and talking about this environment and I think we're on the downhill slope of the pandemic.
Hearing and seeing many things.
That disturb us, but you know we haven't really been touched.
By the supply chain difficulties, we managed to Dodge all of those bullets. So the kind of thing that can happen in a year. Like this is really not reflective of what the last 12 months might have done.
We're a.
Very happy with the growth start we had with leasing made a big difference, but I think this will be the year of margin enhancement revenue enhancement.
And operating efficiency.
And I know that Brian Comstock, and Lorie and I am just as some others have been talking about that a lot. It just really hard to lay it out.
And anticipate at all.
Totally understand I appreciate all of that qualitative.
And really that was the motivation for my question you know you called out the inflationary environment and labor and supply chain.
<unk>, which we are certainly seeing across a lot of different companies and that's that's what I was really trying to get to in terms of you know 40% of deliveries in the front half and then the inherent operating leverage with increasing production offset by some of these issues I guess I'll just ask a follow up.
Just because manufacturing gross margin stay double digit in the first half given the headwinds we're facing or should we be more conservative in our models just as you work through the near term challenges.
I'll jump out on a limb there and say I expect it to be a double digit in the first half of the year and stronger in the back half of the year.
And Brian Comstock as vigorously shaking his head, yes, yes, absolutely.
Steve.
When we look at pricing there is no reason to think that pricing is going to receive it all.
We will see improvement throughout the year.
Since we're later in the call can I ask a big picture question or I can get back in queue. If there's someone waiting.
Go ahead.
Thank you.
So bill I wrote this for you Bill, but Brian you brought it up.
You just pull up 10 years of railroad traffic. The trend line is flat at best maybe slightly down coal has obviously been a big part of that but regardless there just hasnt been a lot of traffic growth outside of intermodal.
And what are your thoughts on on what and when.
What caused this low or no growth trend to reverse you brought it up in your slides, but I'm wondering if you could just address that more directly.
Well.
<unk> question, we have our public policy got Jack just one ear today, and if you've been paying close attention to everything going on in the government, which is also possible to do.
The STB has gotten a lot more advice team it could be that.
STB oversight of the rail industry will be a stimulus to the more responsive customer driven as opposed to.
Profit for the short term driven thing.
Everybody has a hard time understanding a simple fact about our industry.
The traffic loadings or an amalgamation of ton miles from 20 to 30 different commodity types and sources.
We've had booms in coal we've had booms and center beam cars for lumber transportation, we've had booms and.
Small cube covered hoppers for the transport of sand and oil.
Oil by rail so all of those things flush through and they produce the.
Statistics to which you refer.
But in fact, if you look at what Brian mentioned in Europe, and you extrapolate it to the United States and you look at.
ESG environmental impact carbon footprints rail is the place.
That.
Growth should take place like should it occur is three times more efficient than carbon.
Carbon use and.
Pollution.
It uses a lot less fuel to produce it to ship a ton mile.
It could be that a regulatory environment.
A different regulatory environment.
A lot of stimulus to two rail traffic, but the traffic and demographics that we see with all.
All of the negative things that people talk about for our industry for railcar builders. It's been positive the velocity has declined.
The traffic is still stronger year over year.
It's really a great environment, particularly as you look out in the future and see what might occur and what almost has to occur.
In rail.
Over the next decade.
Okay.
I appreciate that color. Thank you.
Thanks, Steve.
Our next question comes from Ken <unk> with Bank of America.
Hey, yeah, they can put a good afternoon.
So congrats to bill on a on a great career and founding and building Greenbrier and great working with you over the past decade and change and to Lorie on the on the road ahead, and congrats and best of luck.
It seems like just let me hit on yields I mean, you've hit on a lot of.
On the build side, but on yields at $665 million backlog.
6700 units that that puts the average at just under 100000 down from 105 last quarter 115, two quarters ago, and I know that there's always mix and everything that you you talked about but it seemed like you were just about to start talking about pricing and what's going on underlying that can you give us any further.
Information on the mix of what's driving it to understand what what core pricing is looking like underneath that.
Yes, Ken this is Bryan I can give you a little bit of flavor on that.
So so when youre looking at higher Asps as a lot of time, you're looking at.
Higher delivery of specialty tank cars and things of that nature and this particular.
In this particular cycle, what we're seeing is a very diverse order book is hey, it's really every car type that you can imagine.
But in essence, you've got a lot more intermodal that are coming into play you have a lot more covered hopper cars and you have a lot more of no gun and those typically have a an ASP somewhere under $100000. So that gives you a little bit of a blend we're still seeing strong tank car.
Demand, we're still seeing some automotive demand despite chip shortages, but at the end of the day, what's really driving the ESP is the large volumes of.
What I would call more general freight cars.
Great I appreciate that.
So it sounds like a fairly good solid mix across the board.
So if you just talk about your you're scaling 16, 18, or I guess really 17 of 19 5000, where do you think your utilization level is that now lorie I know you threw out some numbers real quick on the number of lines or facilities that you're at now, but where do you think capacity is.
First is that utilization is it still when you are fully up and running back to that low twenty's mid twenties.
And then lorie it seemed like you were thrown out with the backlog.
Can't choose.
Choose not to ramp quicker or it sounded like you were throwing up more safety or is it supply chain, maybe just thoughts on why you can't ramp quicker.
Sure. So from a utilization perspective, I'd say, we're probably somewhere in 70% to 75% utilized I would say our production folks do an amazing job of at times, even getting beyond what we think might be capacity there they can be quite creative at times.
I guess I was just a little bit as it trying to get some color as to where there might be upside we do want to be mindful as we're bringing people back and even if there are people that work in our facilities before it takes a little bit of time to get back in the groove of working in a safe manner, and making certain that we're building quality.
Railcars, so we don't want to be pushing so hard.
We pushed something until it breaks I think again, we're not the only company out there that is in the midst of ramping up to respond to improving demand, but also be mindful that we're doing that on the back of our workforce that we need to be mindful of that workforce and making sure we don't push too hard.
They're incredible men and women and they do a great job everyday so.
That's part of why we're not giving explicit guidance, because we think that as things move through the year as more people get back to Nathan.
Has the supply chain.
Start loosening up and improving there can be a number of factors that will allows us to be more positive than the guidance that we've given which is part of it is growth off of where we have been so I'd say, that's kind of where we're going to and why we're giving the guidance that we've talked about.
Every company that's talking about things today as past have some cautionary remarks to be responsible.
We have done this a long time I, it's hard to bring people back very quickly and it's a shorter term issue we've got a lot of capacity.
We've got a lot of design capability around the world, we're especially fortunate to have.
In North America, a strong footprint in the United States and labor availability in Mexico.
So I think.
Personally I'm very optimistic we can bring on.
On our cars.
Cars expand our lines with and continue to keep our safety statistics, Let me just give you a couple of notes on safety or the reasons Lorie is focused on this is safety improves.
The welfare of our workforce.
That is not only good.
Going to do but it improves the workforces.
Productivity, our safety statistics over the past five years have been awesome, we're way below industry standards and we've been improving year. After year. It is a core value of the company and it creates shareholder return through productivity. So what you're hearing from us is.
Simply a little cautionary note that we don't want to push the throttle. So far ahead that we heard people and we bump into our supply chain issues, we have the capacity and the order pipeline continues to be filled by the men and women who are.
Doing that in leasing and commercial working over there.
Brothers and sisters in manufacturing I think we are.
We can be.
Overhead absorbed.
Absorption and other efficiencies economies of utilization.
This company can really do very well as we've proven in earlier cycles.
Great. Thanks, Tom Thanks, Laurie I appreciate it.
Our next question is a follow up from Justin long with Stephens.
Thanks for taking the follow up I wanted to ask about quarter to date.
Our activity just given we're two months into the quarter now have you seen any change in the level of orders and inquiries relative to what you saw in the fiscal fourth quarter and then last one from me is just on the tax rate Adrian I don't know if theres any color you want to provide on 2022, just given how much that's been.
Moving around.
Sure.
And this is Brian I'll take the first half of that question and then pass it over to Adrian.
Uh huh.
On the order rate I would the way that I would.
Would lay it out as we're seeing it at very similar rates to what Q4 was.
Don't see any slowdown at this stage and I think where the activity is very similar to Q4.
Great. Thanks, Adrian on the tax rate.
Yes, we should see a return to a more normalized tax rate for fiscal 2022. So.
27 ish percent.
In that range, depending on what happens in D C. Depending on what happens in D C.
Understood I appreciate it that's very helpful. Thanks again for the time.
Thank you.
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 investor relations at <unk> Dot com have a great Tuesday.
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