Q2 2022 GATX Corp Earnings Call
Speaker 1: Thank you. Good day, ladies and gentlemen, and welcome to the GATX 2022 Second Quart, the conference call. This conference is being recorded.
Speaker 1: At this time, I would like to send a conference over to Sherry Hellerman, instead of investor relations, please go ahead, ma'am.
Speaker 2: Thank you, Kyle. Good morning, and thank you for joining GAT-X's 2022 second quarter earnings call. Thank you.
Speaker 2: I'm joined today by Bob Lyon, President and CEO , Tom Elman, Executive Vice President and CFO , and Paul Tiritan, Executive Vice President of Rail North America.
Speaker 2: Please note that some of the information you'll hear during our discussion today will consist of four looking statements. sized transcript provides a
Speaker 2: Actual result or trends could differ materially from those statements or forecasts. Actual result or trends could differ materially from those statements or forecasts. Actual result or trends could differ materially from those statements or forecasts.
Speaker 2: For more information, please refer to the risk factors included in the earnings release and those discussed in GATX's Form 10-K for 2021 and in our other filings with the SEC.
Speaker 2: GATX assumes no obligation to update or revise any four looking statements to reflect subsequent events or circumstances.
Speaker 2: Earlier today, GATX reported 2022, second quarter net income of 2.6 million, and the first quarter, seven cents per diluted share. The first quarter, seven cents per diluted share.
Speaker 2: The 2022 second quarter results include a net negative impact of $31.5 million or $0.87 per dollar share related to an impairment associated with our decision to sell five million dollars togrow', meaning Ch Comprehensive
Speaker 2: These festivals represent the remainder of a legacy business that is not core to our operations.
Speaker 2: The 2022 second quarter results also include a net negative impact of 4.4 million or 12 cents per diluted share related to an environmental remediation reserve associated with a previously owned property that GATX sold nearly 50 years ago.
Speaker 2: This reserve also marks the end of what had been a small but long environmental trail at the site. This is a very long environmental trail at the site. This is a very long environmental trail at the site.
Speaker 2: Here to date 2022, we report a net income of $78.4 million or $2.18 per deluge share.
Speaker 2: The 2022 year-to-date results include net negative impacts of 44.4 million, or $1.23 per diluted share from tax adjustments and other items. The 2020 year-to-date results include net negative impacts of 44.4 million,
Speaker 2: In 2021, second quarter net income was $5.5 million, or $0.15 per diluted share, and your-day net income was $42 million, or $1.17 per diluted share. $1.17 per diluted share.
Speaker 2: The 2021 second quarter and year-to-date results include net negative impacts of $43.1 million or $1.20 per deluge share from tax adjustments and other items.
Speaker 2: These items are detailed and the supplemental information of our earnings release.
Speaker 2: Now I'll briefly address each segment.
Speaker 2: Real North America suite utilization was 99.4% at quarter end.
Speaker 2: And the Renewal Success Rate was 87.7%.
Speaker 2: Reflective of continued strong demand for the majority of car types within our fleet.
Speaker 2: The renewal rate change of GAT access lease price index was positive 18.3% for the quarter. The renewal rate was positive 18.3% for the quarter.
Speaker 2: with an average renewal term of 34 months.
Speaker 2: quarter in a row absolute least rates increase from the prior quarter.
Speaker 2: We're seeing increasing opportunities to lock in attractive lease rates on extended terms and will focus on pursuing this objective.
Speaker 2: We continue to successfully place new railcars from our committed supply agreements with a diverse customer base.
Speaker 2: We've placed over 3,600 rail cars from 2018 Trinity Supply Agreement.
Speaker 2: Additionally, we have placed off 7,650 railcars from our 2018 Greenbrier Supply Agreement.
Speaker 2: All the Puy-Broom and deliveries which we're trying to have been placed.
Speaker 2: Turning to Rail International.
Speaker 2: Demand for rail car serving a variety of end markets remains high, and we continue to experience increases in renewal lease rates.
Speaker 2: At the end of the second quarter, JTF through your fleet utilization reached a historic high of 99.9 percent.
Speaker 2: Here today, well, International Investment Volume was approximately $128 million.
Speaker 2: as we continue to take delivery of new cars and grow our fleets in Europe and India.
Speaker 2: Within Portfolio Management, second quarter performance was consistent with our expectations entering this year.
Speaker 2: In the second quarter, JTX repurchased nearly 330,000 shares for approximately $33 million.
Speaker 2: At quarter end, about $95 million remain available under the repurchased authorization.
Speaker 2: Finally, as we note in the release.
Speaker 2: Reflecting your-to-date performance in the expectation of a favorable operating environment in a second half, we are raising our 2022 four-year earnings guidance to a range of $5.60 per-dulate share.
Speaker 2: This guidance excludes any impact from tax adjustments and other items.
Speaker 2: Those are prepared remarks.
Speaker 2: I'll hand it back to the operator so we can open it up for questions.
Speaker 1: Thank you. Ladies and gentlemen, if you would like to ask a question, this signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our recruitment. Again, press star one to ask a question. Keep us just for a moment to assemble the queue.
Speaker 1: We take off first question from Alison Polinex with Wells Fargo.
Speaker 3: Hi, good morning. Sherry, you had mentioned the extension of term. I guess on a bigger conversation, with all the uncertainty out there, I mean, are you at the point in the cycle where you think you can push term further of those leases or is there some pushback just given something of certainty out there and the potential need for or lack of need for cars, just any color there?
Speaker 4: Yeah, hi, Allison. It's Paul, actually, I'm going to take this question. And certainly, we are at the point in the cycle where we are successfully beginning to push term. And across the North American Real Car Fleet, most car types are supportive of our effort to both raise rate and extend terms. So it's an environment where that is possible. And we're having some success in that regard right now.
Speaker 3: Got it. And then obviously LPI very strong, but on a relative basis, in terms of the point of the average rate and of those cars through cycles, are you where we need to be? I know we've been sequentially improving, or we still a bit off of normal. Or what you guys would view normal at this point, just any color there.
Speaker 4: Yeah, we would say right now that across the fleet, most of our car trucks right now are in the vicinity of sort of our long run expectations for performance. That's sort of our long run expectations for performance.
Speaker 3: Perfect. And then just last, you know, a rail international, you know, particularly Europe . Does any fluctuation or concerns in that market, I know you're obviously your utilization in such a strong and there's certainly interest there. But does any concern from an economic standpoint over in Europe that could impact you guys there?
Speaker 5: Yeah, Allison, it's Bob. Good morning. So the business in Europe has been doing particularly well and as you note utilization at 99.9%.
Speaker 5: The fleet's, you know, over 27,000 rail cars and I think at quarter end we had, you know, 35 that were idle, which is...
Speaker 5: pretty indicative of the demand for the existing base of assets.
Speaker 5: So no concerns there. Obviously with the war in the Ukraine, there's been a lot of shift in terms of... There's been a lot of shift in terms of...
Speaker 5: product movements, commodity movements, we've seen some uptick in demand.
Speaker 5: for that, which is quite frankly a little bit difficult for us to to fulfill because our fleet is so fully utilized.
Speaker 5: So overall, and even looking out over the long term.
Speaker 5: That market is still very attractive.
Speaker 5: We'll continue to be very attractive for GATX. We'll see very good investment opportunities there despite the volatility.
Speaker 3: Perfect. Thank you. I'll pass it along.
Speaker 1: Thank you. We take our next question from Justin Long with Stephen. Your line is open. Please go ahead.
Speaker 6: Thanks and good morning.
Speaker 6: So, I wanted to start with a question on the guidance. At the beginning of the year, you gave pretty specific guidance by segment. So, as we think about the EPS guidance moving higher, I was wondering if you could just give a little bit more color on what's driving that. And specifically, I also wanted to ask about remarketing income in North America and your expectations there, if those have changed at all, just given.
Speaker 5: It can be a pretty big swing factor in the model. Your second question, Justin, good morning, it's Bob, actually relates very much to the first. From a segment profit standpoint, I would say each of our reporting segments are performing as planned, just from a standpoint of operationally.
Speaker 5: Segment profit, no significant, no material changes really in the outlook for any of our business units.
Speaker 5: Because, as I said, things have really unfolded very much as we anticipated coming into the year.
Speaker 5: The one variable is remarketing.
Speaker 5: and the secondary market remains particularly robust.
Speaker 5: Despite the fact that interest rates have ticked up and maybe the macro environments a little less certain.
Speaker 5: We continue to see very strong demand and we experience that both
Speaker 5: We're in the market selling and one we're in the market buying. So we see both sides of the equation and we see a pretty significant appetite for assets. So we'll continue to take advantage of that and that's really the driver behind the...
Speaker 5: the uptick in guidance.
Speaker 5: is because in all likelihood we'll take a little bit more advantage of that in the second half of the year.
Speaker 1: Thank you, we take our next question from Matt Alkerz, we call in your line is open.
Speaker 5: Good morning, thanks guys. Just a quick follow up to one of the Allison's questions earlier about the average term. If I look back at average terms historically, I think the highest they've gotten is just under six years back in pre-Q-O-7. Now we're at three years. Any way to gauge Paul or Bob where they could pan out when we hit the peak of this recovery, this least rate recovery.
Speaker 5: Sure, good morning, man. It's Bob. I'll start with Paul can jump in on that. It's a little bit difficult to predict right now because no two sight no cycles have ever been the same. You know, we saw in the early, you know, the mid 2000s kind of the ethanol boom.
Speaker 5: And you're very familiar with the crude boom that took place.
Speaker 5: Now there is no commodity boom of any particular kind. It's more of a fundamental improvement and more gradual improvements than we've seen in past cycles. So maybe the extension of the term is not as sharp as you've seen in past cycles. But the opportunity is absolutely there to extend term. It takes a while though.
Speaker 7: to turn the ship around, but we're absolutely doing that and I think
Speaker 7: It's important to note not just so much the actual number in a quarter, but kind of the move from one quarter to the next. So...
Speaker 7: Commercial teams doing a very good job of capitalizing on lease rate environment improvement while also extending term.
Speaker 8: Got it.
Speaker 5: that's helpful. Bob, also just another kind of macro question, I know this recovery has been driven by supply factors more so than demand factors. And so, the demand factors. I know this recovery has been driven by supply factors you
Speaker 5: But one, you know, favorable demand driver has been the sub-album rail service. There's still scrambling to improve service. So let's just assume they do improve service by like next year. And we go from being down 2% in total traffic, including in term model to be up 2% or 3% next year.
Speaker 5: Do you think the demand headwind from improved rail service would offset the demand tailwind from volume growth and subsequently put pressure on lease rates or cause the lease rate recovery to moderate? Do you think the demand headwind from improved rail service would offset the demand tailwind from volume growth and potentially put pressure on lease rates or cause the lease rate recovery to moderate?
Speaker 4: So it's a great question and it's one we spent a lot of time on here. This is Paul speaking by the way. We really feel like there's a lot of freight on the sidelines right now that wants to go by rail. And we feel that ultimately railroad services are told in that back. So in in past situations where we had poor railroad velocity, absolutely we would see a decline in demand for rail cars and velocity improved. Here we think there's enough freight on the sidelines and we hear this from our ship or customers.
Speaker 7: the network either. So overall we would say we're much more bullish about the railcar market in the context of a velocity recovery than we might have been in previous periods where a velocity recovery was occurring. Yeah, Matt, it's Bob too. I just want to point out Paul touched on an important fact. That's not just a handful of us sitting in a room coming up with a theory. We renew thousands of cars every quarter. That affords us the opportunity to have a lot of customer interaction. We listen a lot to what our customers are telling us.
Speaker 7: That stands behind the comment Paul made that we think many of our shipper customers, if they could, would move more product by rail as service improves.
Speaker 5: So you're going to feel, you know, you have this confidence despite the fact that, probably the most dramatic volume growth improvement would be on the intermodal side, I guess.
Speaker 5: because it's the one that's done the most. And I don't think you guys are a huge player in intermodal.
Speaker 4: I'd say two things there. We do invest in steel wheel intermodal equipment. You're right, it's a relatively small part of our portfolio. But I would also say our customer base is very much a customer base that is dominated by carload shippers. And when Bob talks about the feedback we're getting from shippers that have freight that wants to go by rail, it's that carload shipper base. So we do think that if the service were there, it's not just the intermodal network that would pick up. We think there are carload shippers that want to get...
Speaker 5: can't really say much further than that.
Speaker 7: Yeah, hi, Matt. This is Tom. So one thing that's really important, how you doing? One thing that's important to understand is that our, both our revenue and expenses are often denominated in local currency. So we have a natural hedge. We also hedge a portion of our FX exposure. So in total, it's really relatively modest at the GATX level, maybe less than $3 million or so.
Speaker 8: Thanks very much. Appreciate it, guys.
Speaker 9: Thank you.
Speaker 1: Moving forward to Marla Becker with CODOT, your line is open. Please go ahead.
Speaker 10: Thank you.
Speaker 11: Can you provide any additional color on how some of the supply chain issues that were obviously very much top of mind a few months back, how they might be impacting the business right now? Can you provide any additional color on how some of the supply chain issues that were actually very much top of mind a few months back, how they might be impacting the business
Speaker 7: Well, I'll give you an answer on that. That's really too prong. One in Europe and one in North America. And then others can chime in. Now when we look at...
Speaker 7: The supply chain disruption that had taken place, it...
Speaker 7: probably had its biggest impact really.
Speaker 7: and the component side of the business here in North America and some delays and increased costs.
Speaker 7: Steel obviously the price of steel had gone up pretty dramatically that seems it has evaded somewhat
Speaker 7: But still, some of the componentry that's involved in assembling railcars, there's still some backlog, still some cost increases there that we see continuing to push some of those railcar prices up.
Speaker 7: that's involved in assembling rail cars. There's still some backlogs, still some cost increases there that we see continuing to push some of those rail car prices up. And you're up.
Speaker 7: The issue really also revolves around more on the component and wheel set side. A lot of that equipment had come out of the Ukraine. So it's now being sourced elsewhere. There are places to obtain that equipment, but the backlogs are a little bit longer and the cost is absolutely higher. But the market overall is adjusting.
Speaker 7: If we want to order cars today, we can do so. In Europe , the backlog for rail cars in terms of time is pushed out a bit, but it's still manageable, and we're still expecting that we'll meet our targets in terms of what we expect to add for rail cars in both North America and Europe this year.
Speaker 11: Okay, thanks. And then one other question, which is in terms of the conversations you're having with customers and given the uncertain outlook for the economy for interest rates for inflation. Are there any kind of.
Speaker 11: caveats that they're discussing or trying to put in place to protect themselves from the downside that are, you know, are new in this particular cycle compared to, you know, things you've seen in prior cycles.
Speaker 7: Now I would say in terms of new, no, our customer base is one. If you looked at the top 50 names, the GAPX you'd recognize everyone. The customer names the GAPX you'd recognize everyone.
Speaker 7: They are large.
Speaker 7: sophisticated organizations.
Speaker 7: that they themselves have been through multiple cycles and have been customers of GATX on average for between 40 and 50 years.
Speaker 7: multiple cycles and have been customers of GATX on average for between 40 and 50 years.
Speaker 7: They're very well versed.
Speaker 7: And the cycles of their individual businesses and managing through environments, inflationary environments, and interests, environments where interest rates may be on the rise.
Speaker 12: So we're not seeing any.
Speaker 7: Unique, troubling, concerning behavior at all among our customer base. A rational logical approach. A rational logical approach.
Speaker 13: Thank you.
Speaker 1: Thank you. We move to the next question from Justin Berkner with GABBILY funds. Your line is open.
Speaker 5: Good morning Bob, good morning Tom, good morning Paul.
Speaker 14: Morning, John . Morning.
Speaker 5: My first couple questions are just a bit on the clean-up side.
Speaker 15: This right-off or impairment of your vessels
Speaker 15: What is the accounting treatment then going forward into the second half until those are formally disposed of? And are you getting any benefit in the earning side?
Speaker 15: on lower depreciation or other line items within your new earnings guide.
Speaker 7: Yep, so Justin, this is Tom. So we made the decision to sell five marine vessels. That decision and commitment to sell or exit these assets required G8X to classify these as assets held for sale. When you do classify the assets as held for sale, you present them at the lower of the carrying value or the MDV less the cost to sell. So that's really what drove the decision to have the impairment.
Speaker 7: Once you do that, as you point out, depreciation will cease until the assets are sold, so we would not have any depreciation going forward. There will be a lack of depreciation when compared to prior periods.
Speaker 4: and it's relatively small.
Speaker 15: Okay, so maybe we're looking at something, you know, less than like a 10 cent per share benefit in the second half or...
Speaker 12: Yeah, I just, so materially less than that. These vessels have never been.
Speaker 12: Even if you turn off depreciation, they're not great earners for GATX, hence the reason.
Speaker 12: we're going to extricate ourselves from them. And really the driving force behind doing that, we've owned these vessels for a number of years, and we've been able to do that for a number of years, and we've been able to do that for a number of years.
Speaker 12: in certain markets.
Speaker 12: There is increased demand for vessels and for the first time in years we actually
Speaker 12: have seen serious interest in potentially selling those from the buyer universe. So that was not the case over the course of the last few years. We assumed we would hold them and run them till scrap.
Speaker 12: But activity has picked up a little bit. It's an opportunity to exit.
Speaker 4: Yeah, and Justin just building on that a little bit. We sold the first vessel in July , and we expect to sell the second one, sometime in the third quarter.
Speaker 15: Okay. My second clear question was the environmental cost that you added back in your adjust to the PS. The environmental cost of the environmental cost the environmental cost
Speaker 15: Is that following the other segment, just to clarify?
Speaker 14: The environmental reserve? Yes.
Speaker 16: Okay.
Speaker 15: Great. And then more substantively.
Speaker 14: You mentioned that portfolio management, you know, in the second quarter was in line with your expectations. The share of income from affiliates seemed to step up. Just any color there on the sequential step up? Yeah, Justin, the key thing to keep in mind with that investment in income from affiliates is it's really driven in a large part that lumpiness or the timing based on remarketing activities. We would like that to move around quarter to quarter.
Speaker 15: Okay, great. And then lastly, the maintenance expense looked like it came down a bit further sequentially. Was that just fewer maintenance events because of the strong utilization or did you see a further improvement in your execution and your maintenance network?
Speaker 15: Okay, great. And then lastly, the maintenance expense looked like it came down a bit further sequentially. Was that just fewer maintenance events because of the strong utilization or did you see a further improvement sort of in your execution and your maintenance network and or, you know, housing of service events?
Speaker 4: It's a mixture of both, actually. So it's event-driven, but it's also driven by some continued efficiencies that we're driving.
Speaker 15: Okay, thank you.
Speaker 9: Thank you, Justin.
Speaker 1: Thank you, we take our next question from just and stay long with Stephen, your line is open. Stay long with Stephen, your line is open.
Speaker 6: Thanks for taking me follow up I think I got disconnected earlier, but I wanted to circle back on the comment you made about the absolute res rates increasing again sequentially. Could you share what percent increase you saw in the second quarter versus the first and any updated dots on the LPI guidance you provided for the full year.
Speaker 4: So what I'll say is this sequential increase continued and we saw sequential increase that was in the teens quarter of a quarter across the fleet. And in terms of the LPI, we'd say at the high end of the prior guidance, maybe a smidge higher than we did in the second quarter potentially. So continued strong performance. So continued strong performance.
Speaker 6: Okay, so as I think back to the question I asked on the guidance, it sounds like not much has changed by segment. Really the reason it was increased by a bit was the remarketing income, but when I think about the momentum you have in lease rates and what we've seen in the last couple of quarters, I would think that would start flowing through the model more meaningfully. I understand that you have a limited amount of renewals.
Speaker 6: you know each quarter but you know is their potential for upside in North America that your continues or are you expecting to be free momentum to stop stop
Speaker 12: Now we're not expecting it to stop from the stamp as Paul mentioned. We would as we look out in the third and fourth quarters, you know, in the visibility beyond that, we'll revisit as we get into the back half of the year, but we expect a very strong LPI again in the third and fourth quarters.
Speaker 12: But keep in mind, we came into the year expecting positive LPI for the first time in six years. So our initial guidance already had baked into it and LPI of plus five to plus 15%. LPI of plus five to plus 15%.
Speaker 12: So you're looking at the incremental amount over that. We did plus 18% in this quarter, and then you only really get it for two quarters. And then you only really get it for two quarters.
Speaker 12: you know that increase in revenue. So it takes time to build, you know, turning the aircraft carrier around and the business of our size. And the business of our size.
Speaker 12: Takes some time, but it's turned around. And we're fully, we'll try to optimize that and capitalize on it. And we'll try to capitalize on it. And we'll try to capitalize on it. And we'll try to capitalize on it.
Speaker 6: Understood and last one for me is on rail car acquisitions. I feel like me been pretty clear that you're open to looking at opportunities and the struggle over the last couple of years and really beyond that has just been the valuations for the most part haven't been in the right spot. They've remained elevated. Given the economic uncertainties that seem to be mounting, is that...
Speaker 6: changing it all and could you just talk about you know you look out over the next year so your confidence that you can start deploying capital towards acquisition
Speaker 12: Sure, it's Bob and I can answer that. So yeah, it has been a challenge in recent years, particularly with mere zero interest rates and...
Speaker 12: You know, financial investors looking for yield and you know, viewing rail car leasing is...
Speaker 12: the quasi bond, which ultimately a lot of those investors figure out is not the case, right? This is an operating business and it's a complicated business and over time we have seen some of those investors exit.
Speaker 12: And we've taken advantage of that, right? We've bought a lot of rail cars in the secondary market.
Speaker 12: And yes, we think the opportunity will be there, but it's, again, you can't force anybody to sell. And there is also a composition element to it.
Speaker 12: There are plenty of portfolios in the...
Speaker 12: Call it 5,000 car range that we've looked at, that we've been called on over the course of the last few years. The car was a car that we've been called on over the course of the last few years.
Speaker 12: And
Speaker 12: the composition of the fleet.
Speaker 12: you know warrants it unattractive
Speaker 12: So it's not just a price element.
Speaker 8: Yes.
Speaker 12: the diversity of the fleet, where did that investor put its capital?
Speaker 12: And what's the car composition? And a lot of times, you know, just based on the teaser, we will pass. Because we know what's in there.
Speaker 12: But there are certainly portfolios that are attractive, that are of interest, that we think may be in a rising interest rate environment, a less certain macro environment, maybe some of those shake loose. We have the balance sheet to do it.
Speaker 12: We've done it in the past. We know how to buy those assets and bring them into our portfolio very efficiently and we can do that.
Speaker 12: and very eager to do that.
Speaker 12: But we, as you know Justin, you've followed us a long time. We certainly won't chase evaluation.
Speaker 14: So, just in the one thing too, I'd point out for investments is coming into the year we noted we expected to do another year of a billion dollars or more and year to date we're at 685 million. So, well in our way.
Speaker 6: Definitely, that's a good point. I appreciate the time.
Speaker 9: Thank you.
Speaker 1: We take our next question from Basco New Majors with Susquehanna. Your line is open.
Speaker 17: Thanks for taking my questions. And rail north America. And rail north America.
Speaker 17: You know, there's certainly a lot of enthusiasm for the railroads that they will see sequential volume growth in the second half. As services restored and labor issues become less of an issue. But there's obviously some macro risk to that as well. And you know, you've got this. And you know, you've got this.
Speaker 17: unique kind of situation in that business where you're sandwiched between a lot of pricing power for leasing with where new asset prices are that it's been pretty obvious in your sequential comments already, but also maybe some macroeconomic risk to what, you know, underlying utilization, not for you, but for your customers and how actively they're using those cars if there is a bit of a slowdown and some of that front. So, you know, it's a lot of words for me to ask, you know, if we are an environment where
Speaker 17: You know, you have the benefit of new car prices being high, but maybe the car need is not what you hoped it would be and cars and storage start to rise again. How does your playbook change and is there an analogous period historically that we should look at to think about that kind of environment? Thank you.
Speaker 12: Yeah, that's come out. I don't think there is, as I said, every cycle is different. And what's the... And what's the...
Speaker 12: you know the mid-2000s, the post-cruid boom, you know, the car supply and what happened in the North American fleet are very unique.
Speaker 12: So there isn't a perfectly analogous situation to where we're at right now. What I will tell you is we believe our customers are running.
Speaker 12: very tight in terms of their car supply.
Speaker 12: There's not a lot of excess capacity, at least in the breadth and depth of the portfolio we have. The breadth and depth of the portfolio we have.
Speaker 12: We don't see a lot of pockets of weakness right now in our customers if they could. As we said they would move more product by rail and they would take more cars.
Speaker 12: So our strategy doesn't change, right? We're a long-term, less-or, full-service provider. We expect to earn a return on our assets and we'll price accordingly. We will price accordingly.
Speaker 4: So no dramatic shift in our strategic thinking. And I just want to add too, if I could, this is Paul speaking, that we're also continuing to see net shrinkage in the North American rail car fleet right now. So there's a high level of retirements occurring, which has been helped by higher scrap prices. And there again is not a sort of boom level of new rail car production occurring. So that's another thing that I think helps us feel confident about this market right now. You know, we are seeing tightness in the existing fleet, but we're not seeing net adds to the existing fleet.
Speaker 17: Any more analysis around that would be great.
Speaker 12: Well, we certainly do a balance of both, fast and, I mean, with our supply agreement and its importance.
Speaker 12: for us to point out that, you know, we have supply agreements that run through the end of 2023.
Speaker 12: Those have always been important to us.
Speaker 12: And that provides us with the ability to continually bring new product and new rail cards into the fleet to serve our biggest and best customers.
Speaker 12: We'll selectively add that to that with the spot transaction and the spot purchase. With the spot transaction and the spot purchase.
Speaker 12: As a matter of fact, year to date, outside of the supply agreement, we've invested almost $140 million.
Speaker 12: and another 40 on top of that and the assets we bought in the secondary market.
Speaker 12: So, but if you're disappointed and have good customer relationships, you can find those opportunities, even in an environment of high asset prices.
Speaker 12: So yes, we are selectively finding those.
Speaker 12: And again, I think it speaks to the strength of the commercial organization that we have that we can go out and find them.
Speaker 17: Thank you for that last one from me. You've been pretty forward about the environment in Europe being...
Speaker 17: Still quite constructive and certainly I think more resilient than a lot of people on the outside looking in would have expected.
Speaker 17: But, you know, there's obviously some issues with manufacturing, supply chain, cost of energy cost materials there that have changed the dynamics of... The cost of energy cost materials there that have changed the dynamics of...
Speaker 17: what it takes and how much it costs to build a new car. Can you talk about how effective it's been to go through and have your OEMs?
Speaker 17: You know, perhaps mark up your cost for unforeseen circumstances and you being able to collect enough from the eventual less or to make that return work for you in a higher asset cost environment. How is that process worked out? Is that still ongoing? Thanks. Thanks.
Speaker 12: Well, I would say at some level it's still ongoing and it's one that ourselves and other lessors, other railcar buyers, and all of the OEMs are still feeling their way through. But generally we have very good protection in our purchase contracts with regards to the
Speaker 12: to the purchase price.
Speaker 12: Obviously given the extreme spike
Speaker 12: in component prices and steel prices earlier this year, there was some dialogue and negotiation back and forth with the OEM.
Speaker 12: as well as with customers who had committed to take delivery of cars.
Speaker 12: Our team there has done a very good job of protecting our economics as we put those assets to work.
Speaker 8: Thank you all.
Speaker 18: Thank you.
Speaker 1: We take on our next question from Steve Varger with Capital Mark, see what, keep in-capitan market.
Speaker 19: Hey, good morning, guys. Yeah, you kind of just answered it on that last one, but I'm just trying to square up really strong secondary market conditions, lease and utilization rates stronger and improving, fleet conditions much tighter with not a lot of net ads. Yet most of the OEM orders we've seen so far have been kind of low volume, high mix. Do conditions just not support the multi-year orders, or is it the material cost being...
Speaker 12: I'll provide a base load.
Speaker 12: And as I mentioned, we have agreements that run through 2023. The fact that that date is not that far off is not lost on us. So you can assume, you know, that that's on our radar screen in terms of what makes sense beyond 2023. The fact that that date is not lost on us is not lost on us.
Speaker 12: But in the spot market.
Speaker 12: It really is customer-specific. As I said, we've already done close to 140, 150 million of spot investment this year. And that's with customers who's demand and need with significant enough. With significant enough.
Speaker 12: that they're willing to sign up to a lease that preserves GATX's attractive economic return on that investment.
Speaker 9: Broadly speaking...
Speaker 12: Going out and just buying a whole bunch of cars on a spec basis for a near-term delivery and then hoping you get a high lease rate is usually a bad strategy.
Speaker 12: And that's not something GATX would do.
Speaker 19: Thanks. And just back to your comment on having blue chip customers that have been through cycles. Obviously, public market investors are thinking slow down or recession. Can you talk about how the tone has changed, if at all, from your customers or how you're thinking as you've watched this kind of macro environment evolve over the last
Speaker 19: Thanks. And just back to your comment on having blue chip customers that have been through cycles. Obviously public market investors are thinking slow down or recession. Can you talk about how the tone has changed if at all from your customers or how you're thinking as you've watched this kind of macro environment evolve over the last couple of quarters?
Speaker 12: Sure, well the first thing I would say is I don't think we ever felt any
Speaker 12: You for it.
Speaker 12: We need cars at any cost type of field from our customers over the last course of the last couple years as the market improved.
Speaker 12: So our customer base really hasn't swung from...
Speaker 12: you know, one thought process to another. They're very methodical about how they go about their business, as you would expect. and you will position him steady.
Speaker 12: So the current macro environment, I think is not something that has caught most any of our customers really by surprise. So we're not seeing a dramatic change in their behavior. So we're not seeing a dramatic change in their behavior.
Speaker 20: Understood. Thanks.
Speaker 1: Once again ladies and gentlemen, that is star one to ask a question. Star one to ask a question. We take our next question from Justin Wagner with Gambling Funds.
Speaker 15: All right, thanks for the follow up.
Speaker 15: Want to ask your opinion, would you say that one of the reasons why customers have been reluctant to put in orders of material volume is because they're waiting to see
Speaker 15: how the demand changes once the utilization
Speaker 15: you know, in the Tier 1 rails, it improves hopefully in the coming quarters.
Speaker 12: Well, I think customers are like a GATX knowing that...
Speaker 12: When they put equipment to work, at least through us, it's going to be on a very long-term lease.
Speaker 12: And we are always mindful of the fact that every asset we buy tends to be a 30 to 40-year asset.
Speaker 12: So you never want to make those decisions based on something you think might happen in the next six months.
Speaker 12: or the next nine months. So.
Speaker 12: Our customers have a very similar...
Speaker 12: similar mindset.
Speaker 12: I think they're looking well out beyond.
Speaker 4: the short term here and not trying to play any particular dip or spike up in the market. It's also worth noting that the Class 1 railroads have actually limited the private cars that certain shippers can bring on due to congestion issues. So to some degree there's also just a practical limit that if you're a shipper on a railroad that is essentially blocking additional privates, you're not going to take them. We would expect that to ease as network fluidity returns.
Speaker 15: We're seeing signs that that is easing. Okay, thank you. And then the second question relates to gains on acid disposition. The second quarter looked, you know, light. I know you expect it to be light.
Speaker 15: You're expecting now more of a pickup in the second half. Was the second quarter just light because the first quarter was so strong, or were there any dynamics? You're expecting now more of a pickup in the second half.
Speaker 15: in terms of the secondary market in 2Q that you think are going to reverse or get stronger in the second half.
Speaker 12: Yeah, Justin, nothing unusual in the market, no dynamics at play there. That's just our timing of when we prepare and come to market with our packages. And quite frankly, you know, we're always dependent when we're in this process on a third party on a buyer executing.
Speaker 12: on a time frame that may be different than the one, you know, we expected or thought might play out in a quarter. So nothing unusual at all. And as I mentioned, the secondary market remains really active, very robust.
Speaker 12: that may be different than the one we expected or thought might play out in a quarter. So nothing unusual at all. And as I mentioned, the secondary market remains really active, very robust. Very thanks again.
Speaker 1: Thank you. It appears there are no further questions at this time. I would like to turn the call back to our presenter for any additional closing comments.
Speaker 2: I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.
Speaker 1: And this concludes today's call. Thank you for your participation. You may now disconnect.