Q4 2022 Greenbrier Companies Inc Earnings Call
Metrics can be found in a slide presentation posted today on the IR section of our website.
As a reminder, matters discussed on today's conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Throughout our discussion today, we will describe some of the important factors that could cause greenbrier as actual results and 2023 and beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier.
And with that I'll turn the call over to Laurie good morning.
Good morning, Thank you Justin and good morning, everyone. I appreciate you joining us today.
Before returning to our results.
Want to commend our business units and all our colleagues and production are completing another year of outstanding safety performance.
Our recordable injury rate declined by nearly 16% and our dart rate went down 17% from 2021.
This is the second year in a row with double digit improvement following steady improvements over the past three years.
This impressive performance occurred at the same time, we increased our global workforce by 35% and during a 50% rise in enterprise wide production rate.
In North America, our production rates increased by 75%.
Based on this higher production activity and workforce growth. It's obvious why we're proud of our safety record.
It demonstrates the importance Greenberg places on the safety and wellbeing of our workforce.
Now turning to our business performance the fourth quarter was Greenbrier strongest operating quarter of the fiscal year.
The growing impact of our leasing platform, including continued strong syndication activity helped drive record quarterly revenue against a volatile macroeconomic backdrop.
Our performance this quarter highlights the value of our integrated business model as well as the strength of our leadership team.
Aggregate gross margins and manufacturing margins continue to trend higher as we realized operational efficiencies and absorbed the dilutive impact of pass throughs tied to input cost escalation.
Our north American manufacturing business navigated a massive boost in output during the fiscal 2022.
In a traditional upcycle, such a significant increase in hiring and production rates would be daunting.
And a year of emerging Covid variance.
Ongoing supply chain disruptions and railway congestion there.
The ramp navigated by our manufacturing team is historic and heroic.
And my thanks, and the things of our board and leadership team to all of our colleagues working on Greenbrier production lines around the world.
And as we look across the globe, we know the economy faces headwinds from the Russian invasion of Ukraine.
With winter approaching escalating energy prices together with a record inflation levels and rising interest rates present, an unprecedented set of conditions.
Economic forecasts predict a recession in Europe .
We are focused on managing our operations on the continent through current and future challenges.
We're realistic and responsive to the economic conditions in Europe yet.
There's still a sense of relative optimism and the rail freight sector.
<unk> volumes are holding up well and rail freight it's playing an increasingly important role in the transportation of critical goods in response to the invasion of Ukraine.
Europe's wagon supply chain has largely recovered from the disruption caused by the war, albeit with higher prices in most areas.
Railcar delivery projections for the next few years are strong and back to pre war levels.
I work with our customer has brought more certainty to our production costs and our sales pipeline and backlog are growing again as new order inquiries remained stable.
And our maintenance service business, we continued to gain momentum demonstrated by increased margin.
The action plan to increase efficiencies in our repair facilities, which included increasing head count in certain U S locations is beginning to improve results.
We're cautiously optimistic about the moderating U S economy, and expect recent economic volatility to ebb in calendar 2023, as the federal reserve smooths its pace of additional interest rate hikes.
Sustained monetary tightening may impact employment and economic growth, but we remain optimistic that the rail equipment sector can withstand a gradual cooling of the economy.
Supply chain issues have improved.
Nowhere near result.
Continuing challenges include the impact of ongoing congestion on the rail lines.
Mortgage of available later labor in certain geographies and limited access to certain components.
We expect these headwinds to diminish during the second half of our fiscal year.
Overall commodity prices, excluding energy have declined from recent peak levels, which in the main should be favorable for rail freight traffic in the months ahead.
As we enter the first quarter of our new fiscal year, we're encouraged by the momentum in our business.
As a team we're focused on a few key initiatives that are rooted in our core values of quality customer service and respect for people.
These initiatives are focused on continuing our manufacturing excellence.
Expanding our services business to reduce the cyclicality of Greenbrier financial results.
Ongoing investment and development of our workforce.
Continuing our commitment to ESG.
And ongoing policy advocacy to ensure our perspective on issues is understood and addressed.
I plan to discuss these initiatives and our business outlook in greater detail at Greenbrier first Investor day scheduled for early February .
We look forward to sharing more details on this important events soon.
Greenberg's Board and leadership team.
<unk> capital deployment between organic.
Annick growth opportunities.
Short term high return internal projects and returning capital to shareholders.
For the last few years, our primary focus has been on safeguarding the business through liquidity.
Preservation until economic stability normalizes.
As a result of recent stock market volatility and to drive long term shareholder value.
We believe there may be a near term opportunity to repurchase shares through our existing share repurchase authority.
At what we perceive our discounted levels.
Share repurchase activity supplements the growth initiatives I highlighted and demonstrates our continued balance sheet strength.
Cash generating abilities and focus on returning value to shareholders.
When I consider the value creation opportunities for Greenbrier I.
I see a very attractive offering.
A stable and reliable dividend.
Assets that are strong cash generators.
A healthy business with robust market share and a growing leasing and services platform.
As we enter fiscal 2023, I'm highly confident in our team's ability to seize the opportunities before us and to navigate unforeseeable challenges.
And now I'll turn it over to Brian to discuss the railcar demand environment and our leasing activity.
Thanks, Lori and good morning, everyone.
In Q4, Greenbrier secured new railcar orders of nearly 4800 units.
It's $620 million.
We delivered 5800 units in the quarter.
For the fiscal year, we received verbal orders of 24600 units were $2 9 billion, resulting in a book to Bill just north of one two times.
Our diversified backlog currently stands at nearly 30000 units with a total value of $3 5 billion.
As a reminder, our new railcar backlog does not include 2300 units valued at more than $170 million that are part of green bars railcars refurbishment program.
Our refurbishment program is another example of why freight rail is one of the most environmentally friendly motive surface transport.
Despite macroeconomic concerns Greenberg order pipeline remains strong.
And we continue to see healthy railcar orders from all categories of customers.
Also there is the emerging strength of our leasing business.
Total railcars and storage have been at cyclical lows for the past several months, indicating a high fleet utilization.
The 276000 railcars in storage over 50% have been idle for over one year.
Adjusting and a large portion of the fleet in storage are retirement candidates.
We expect industry utilization to remain strong into 2023 and scrap cars are expected to exceed new railcar deliveries for the third consecutive year, causing the north American fleet to shrink.
The combination of a shrinking fleet and decrease railcars in storage increases railcar utilization and adds pressure on fleet availability in North America.
These dynamics have contributed to a continued strong north American leasing market for new originations and lease renewals.
And the significant expansion of our lease fleet over the last 18 months has proven to be well timed.
Our leasing team continues to perform ahead of expectations as we scale. This business with an owned fleet totaling 12200 railcars at the end of the fiscal year.
This represents a 40% year over year increase in the size of our owned fleet.
Ladies pricing on renewals has increased into the double digits in fiscal 2022, while our fleet utilization remained strong at just over 98%.
We are very focused on protecting our economics through our lease agreements and by hedging our debt balances the factor for interest rates.
During the quarter, we funded $75 million of our $150 million term loan and Upsized and fixed that we had an interest rate swap.
All leasing that is non recourse and has a remaining term of just under six years on average.
Also during the quarter, we finalized a renewal of our leasing warehouse debt facility to extend the borrowing terms from three years, while reducing pricing levels.
Syndication activity in Q4 totaled 1300 units capping a very busy fiscal year.
As a reminder, the allocation of syndication revenue move from manufacturing to our leasing and management services segment during fiscal 2022 in order to provide greater transparency on the positive impact of our enhanced leasing strategy and our financial reporting.
Our end goal remains to grow green bars consolidated margin.
Greenbrier as management team is experienced in our business model is flexible we.
We are energized and optimistic about our ability to serve our customers and to performed well in our markets.
This leaves Greenbrier is well positioned to successfully navigate these next phases of recovery from the pandemic and the prevailing forces at work and the economy at any particular time.
Adrian will now speak to the highlights in the fourth quarter.
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 represented the strongest quarter of our fiscal 'twenty to 2022 year as a result of increased deliveries strong syndication activity and improved operating efficiencies.
Now, let's speak to a few highlights from the quarter and full year and provide a general overview.
The fiscal 2023 guidance.
Notable highlights for the fourth quarter include record quarterly revenue of $950 7 million, an increase of nearly 20% from Q3.
I believe that gross margins of 13, 4% reflect improving operating efficiencies higher deliveries and strong syndication activity manufacturing and leasing and management services.
Selling and administrative expense of $68 8 million as higher sequentially, reflecting increased employee related costs and consulting expenses.
The timing of incentive compensation trends with the cadence of earnings.
Interest expense of about $80 million as result of higher borrowings increases in interest rates on our floating rate revolving facilities on foreign exchange expense.
Quarterly tax rate of 35, 1% was higher sequentially due to the mix of foreign and domestic pretax earnings.
Sweet items.
We also recognized about $1 3 million of gross costs, specifically related to COVID-19 employee and facility safety.
Net earnings attributable to Greenbrier of $20 million generated diluted EPS of <unk> 60 per share.
EBITDA of $88 8 million or nine 3% of revenue.
Notable highlights for the full year include deliveries of 19900 units an increase of over 50% from the prior year.
Net earnings attributable to bring breyer of $47 million or $1 40 per diluted share on revenue of nearly $3 billion.
Net earnings attributable to Greenbrier grew by 45% in 2022.
EBITDA was 231 million or seven 8% of revenue.
EBITDA increased by nearly 60% versus the prior year.
Greenbrier is liquidity increased to $690 million by the end of Q4, consisting of cash of $543 million and available borrowings of $147 million.
We generated nearly $180 million of operating cash flow in the quarter.
The increase the liquidity and operating cash flow reflected better operating operating results on improvements to working capital.
And the receipt of $76 million of the tax refunds associated with the cares Act.
The remaining tax refund of roughly $30 million is anticipated to be collected in fiscal 2023 and is in addition to Greenbrier has available cash and borrowing capacity.
We have no significant debt maturities until 2026.
Because of the strength and flexibility of our balance sheet, we continue to be well positioned to navigate market dynamics and.
In fiscal 2023, we expect liquidity will continue to grow due to higher levels of cash from operations from improved operating results improved.
Improved working capital efficiency.
Increased borrowing capacity, resulting for more railcars placed on our balance sheet.
On October 20, <unk> Board of directors declared a dividend of <unk> 20.
27 per share our 34th consecutive dividend.
Based on yesterday's closing price our annual dividend represents a yield of approximately three 9%.
Since reinstating the dividend in 2014, <unk> has returned over $395 million of capital to shareholders through dividends and share repurchases.
Our board of directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long term shareholder value.
As already mentioned earlier, we believe there are near term opportunities to repurchase shares at what we perceive our discounted levels.
Greenbrier has a 100 million authorized under our share repurchase program and we will use this capacity opportunistically based on fluctuations in the price of Greenbrier shares and within the framework of our broader capital allocation model.
Shifting focus to our guidance and outlook.
Based on current business trends and production schedules, we expect reimburse fiscal 2023 outlook to reflect the following deliver.
Deliveries of 22 to 24000 units, which includes approximately 1000 units from Greenbrier Maxion in Brazil.
Revenues between $3 2 billion and $3 6 billion selling.
Selling and administrative expenses are expected to be approximately $220 million to $230 million.
Gross capital expenditures of approximately $240 million and leasing and management services.
$80 million in manufacturing and $10 million in maintenance services.
Proceeds of equipment sales are expected to be approximately $100 million.
We expect to build and capitalize into the lease leased approximately 2000 units in 2023 <unk>.
These units are firm orders from leasing customers and are included in backlog, but are not part of our delivery guidance.
As a reminder, we considered a railcar delivered when it leaves greenbrier as balance sheet and is owned by an external third party.
We expect full year consolidated margins to be in the low double digits.
Our business units and our colleagues truck Greenbrier has achieved many accomplishments, particularly during a year marked with unforeseen challenges our experienced.
<unk> management has a track record of success in identifying and seizing opportunities while navigating unexpected events.
<unk> supported by our robust backlog, which provides strong earnings visibility are.
Our liquidity and balance sheet strength to protect our business during volatile times and positions us to be opportunistic.
As we turn to page to the next fiscal year, we are well positioned to enhance shareholder value into fiscal 2023.
And now we will open it up for questions Andrea.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
As a reminder, please limit yourself to two questions.
Again that was star then one to ask a question at this time, we will pause momentarily to assemble our roster.
And our first question will come from Justin long of Stephens. Please go ahead.
Thanks, and good morning.
Maybe to start with the comment you just made Adrian on margin expectations in fiscal 'twenty. Three I believe you said low double digit gross margins. If I look at what you reported this quarter you were close to 13, 5%. So can you give a little bit more.
Color on the full year outlook.
It implies something below where we're exiting this fiscal year.
Yes, we had a very strong Q4, and there is still some uncertainty heading into next year with supply chain issues with the war.
So we would see.
Margins improving in the back half of next year.
Yes, typically are our business.
<unk>.
Is back half weighted in terms of our earnings and volume.
And Justin this is Justin good morning, the one thing I would say is I think bear in mind that.
It takes a lot to move.
Margin percentage on a full year basis, so we do expect to see.
Strong performance and we don't we don't believe that being in the teens is out of the question as we head towards the back half of the year, but it's not going to be necessary fairly a full 12 months just based on what we see at this point.
Got it and maybe similarly I was wondering if you could give any color on the cadence of production and earnings over the course of the year and then just one other thing I wanted to clarify on the on the revenue guidance does that include the 2000 units.
Did you were you expecting to build for the lease fleet or exclude that.
It excludes that so we don't recognize revenue on on that.
Because those assets stay on our balance sheet.
But I would add there generating revenue through our leasing operations. So it's just not the manufacturing revenue and gross margin, but those assets are deployed and generating lease return.
And then on the cadence of activity, we do see about kind of a 40 to 60 split first half second half and probably maybe a $45 55 actual delivery split given that some of our back half production is more heavily weighted towards syndication. So.
This is a matter of we're building more cars through our lease model theyre going onto the balance sheet in Q1, and Q2 and then we'll be syndicating.
A strong volume of that in Q3 and Q4.
Got it and that 40% to 60% with earnings related comment.
Yes.
Great very helpful. Thanks for the time.
Thank you Joseph.
The next question comes from Matt Alcott of Cowen. Please go ahead.
Good morning, Thank you.
So your backlog ASB is the highest.
Ever had.
It's also up 11% from a year ago.
Is this mainly the pass through of higher commodity prices or is there also.
Mix effect.
And.
What I'm trying to gauge I guess is how those core pricing factor it is it.
Possible to gauge if it's a positive or negative.
I know it might be a bit more complicated than that but just any color on the ASP.
ASP at the end of.
Fiscal 2022 would be great.
Yes, definitely Matt I'll start and then Brian will.
Actual speak from his knowledge and experience but.
I would say that definitely there is some escalation of pass through materials and things like that embedded in that pricing although.
We do have a profitable <unk>.
Mix that we are building in there it is a little more weighted towards general freight but we.
We have shown a tendency to be able to build those types of cars profitably, especially.
The more niche products like automotive and box cars, but I would also say I think Brian please step in about core pricing, but it's definitely been improving throughout the year yes.
Core pricing has improved I think you heard of that.
Its partially mix.
Partially pass throughs, there's less tank cars are being produced.
These days a lot more general freight cars, but as just some points out a lot of the general freight cars are everything from coiled steel to wood chips Ddg's green number of different things and some of those are very profitable assets as well. So it's the ASP is more a product of the mix.
And then certainly the pass through has some impact as well.
So Brian and Justin I think the just those comments about the <unk>.
It's still a more heavy mix.
Is it more freight and how have you been last year or less I mean, just relative to last year is the mix more towards freight or 10 relative to 2021.
Yes, good question, Matt it's definitely.
More heavily weighted towards freight car.
Going into 2023.
Got it okay.
And then I.
Your managed fleet declined a bit I think down 3% from last quarter.
Is that is there anything meaningful behind that.
I think it's more a matter of of occasionally we do.
Transition transition away from certain types of customers and sometimes be overall product isn't necessarily the best fit but we still are excited about that business and do you feel that it's a good long term value add for Greenbrier.
Okay, Yeah that makes sense and then just on the general demand environment. We're hearing about tightness in multiple types of freight cars of even shortages in some and some guidance can you just talk maybe about the different types of freight cars and where youre seeing the.
Biggest tightness in the highest demand.
Yes, it's Brian again, we're seeing tightness really across.
All sectors.
One of the big phenomenon going on right now is of course, the low river levels on the Mississippi River, which is putting a lot of strain on on grain.
Type of assets.
But it's really broad broad base across all groups I would say probably the area, where it's still not as robust as it has been in the year is on the tank side.
But that's really because we don't have any big catalyst like a big ethanol buildout or crude by rail build out you're more servicing kind of the general market at this stage with chemicals in upstream and downstream products. So.
But it truly is truly remains very broad based across multiple commodities.
Got it Brian do you get the sense that this tightness of shortage in certain types of cars is going to be alleviated before it starts affecting the rail network in a negative way.
Yes, I don't think so.
If I understand your question correctly now.
Okay got it and just one maybe one final question to two Laurie.
You still feel the same about share repurchases after today.
[laughter], we consider just canceling today's call actually.
[laughter].
I would've thought you would've said had stopped the gunman, but yeah.
Well I think in today's volatile market is.
Important to reinforce that.
Our board of directors and the leadership team thinks about how we deploy capital.
And just a reminder, that we do have authorization to repurchase shares if we feel like it's a good use of our resources.
Great. Thank you very much appreciate it.
The next question comes from <unk> majors of Susquehanna. Please go ahead.
Thanks for taking my questions. If I look at delivery guide of call. It 23000 at the midpoint and I add the 2000 that.
You are planning to build for your own lease fleet could you share I mean, you've talked about 1000 in Europe I'm, sorry, 1000 in Brazil can you share what the Europe assumption isn't there roughly.
And kind of walk us to what youre, assuming that youll be able to come here for this year.
Yes, so I would say that Europe is around kind of in that 3000.
Kind of 3500 range.
Kind of give or take but that's that's what we're seeing at this point with a 1000 in Brazil.
You can say kind of where we're heading towards about 20000 cars being delivered out of North America and that would imply about 22000 cars are being built.
Okay.
Is there a share gain assumption in there or just thinking about your normal kind of 40 give or take percent market share I mean that would imply nor.
North American industry build of somewhere in the 50 to 55000 range, which I think is a bit higher than most people are expecting can you walk us through kind of how to reconcile those two.
Well I think.
We would say that our delivery guidance is based off of our backlog and our production schedules.
And we.
We don't have.
Any explicit market share assumptions baked in or any gains. It's more just a matter of this is the way our production schedules have laid out. This is what we see for the year and we are.
Robustly booked.
In Europe , and North America, we do have a little more open space in Brazil at this point.
Don't necessarily say that we're going to expect.
Much of railcar build north of 50% in 2023, but.
Bear in mind, 2022, and 2023 do you have a.
Pretty substantial increases in delivery expectations for North America. So.
Again it just comes back to you. These are the orders we have in the orders we have been able to take and it's helpful to have a 30000 car backlog I was going to say that that is the point of why we continue to say that having the backlog. We have provides us great visibility I think were actually booking on some production now into calendar 2024.
And we're feeling.
As good as you can feel.
From a manufacturing perspective, having a lot of the ramp behind us so that gives us confidence as we look across our production lines.
On the ramp.
That leads into my next question can you talk about where you are on labor or any other investments to get to the run rate.
Gets you where you need to be to hit the guidance that you've laid out there just curious if we are 80% 90% of the way there are even closer thank you.
I would say that we are fairly close there I mean, we're not.
Not immune to the challenges that are being faced by a number of companies across the United States in particular.
With attracting and retaining.
Our skilled workforce.
More so than at our U S facilities, we're very fortunate in our facilities in Mexico that we are a good workforce. We've got good relations with our workforce so that as the.
Business activity.
Fluctuate, we're able to bring back that solid workforce and do it in a.
In a way that we keep our workforce safe, we continue to build quality railcars for our customers.
And we're also looking at things that we're doing for our workforce across the board.
Thinking about our wages appropriate based on where we are with inflation and other market drivers. So I think we're doing a number of right things, but it is definitely an hour.
I would say that we're pretty much there and bringing back the bulk of the workforce, but we'll continue to have some challenges.
On the margin front can you talk a little bit about the gap in margins between your different locations be it.
Mexico versus the Central U S versus Europe , just curious if there is a addition by subtraction.
Goal here as you bring margin option one of these regions. It does impact the consolidated margin pretty nicely. Thank you.
I would say that.
We're fortunate that we have.
Fairly steady margins at our various facilities they each have.
Benefits that they bring to the consolidated results.
We're mindful of the car types that we build in different locations.
Leaning on the strength of that particular location whether it be.
<unk> facility layouts or workforce maybe.
Maybe robotics or access to componentry, I don't there's not one particular footprint or production line debt.
Carries the day or drags things down and I think we're seeing steady improvement in Europe , I mean, it's been a little bit.
More difficult for that group just because of.
The recent impact of the war and the step up in cost.
But again the team there did some great collaboration with our customers to.
Work through something that I don't think that environment has seen.
Maybe ever I think that we're a little bit more accustomed to some of that volatility and input costs here in North America. So.
I don't think that there is any one particular area that that's a drag or a superstar.
Thank you and last one for me can you talk a little bit about the syndication market has a higher cost of capital change to either the depth or makeup of who youre seeing bidding on railcars that you put into those channels and just any thoughts about.
How that could evolve and whether or not the rising lease rate is.
<unk> has been sufficient to keep up the expected return for the people who are playing in that market. Thank you.
Yes. This is Brian so good.
Good question and we haven't seen any change in liquidity in the syndication market.
If in mind that the way that we price deals that we have interest rate adjusters and so we tend to keep up with.
The rising debt costs.
And the players that we've partnered with R. R.
Our long term players in the marketplace and so as we look forward, we continue to see a robust and really unaffected syndication market.
Thank you.
Thanks for asking.
The next question comes from Allison Millennia of Wells Fargo. Please go ahead hi, good.
Morning.
Laurie I just wanted to get your view here.
The client and a customer perspective, it seems like an unusually rationale freight car market in terms of demand this cycle.
Is your sense. This is really just a replacement driven demand market or do you feel like there's some incremental adds in certain vertical just any thoughts there.
Sure. Thanks. It is it is unsettling to see how rational things are going right now, which makes it almost feel irrational.
I would say that it is.
Broadly.
Replacement demand as Brian I think indicated in his prepared remarks, we've been.
The North American market has been scrapping.
At a pretty rapid clip.
I think that our customers and Brian can add on to this but our our customers certainly have more that they would like to put on the rails, but theyre struggling with.
The railroad performance in some of the fluidity issues. There. So I think as some of that settles out we might see a little bit more growth and a focus on.
Increasing transportation via the rail.
That's one of the positive spot I would say in Europe as they are definitely much more focused.
On the transition to <unk>.
Good on the rails as opposed to the highways, which is why we're seeing that expectation, we're seeing that strong pipeline with our customers as they're looking to grow and grow their fleets as well as to replace some aging equipment, Brian anything you'd add yes, no I just would piggyback off what you said, it's one of the reasons.
Why we continue to remain pretty excited about the long term future of rail is there is a tremendous amount of pent up demand. The rationalization is being brought on by the lack of fluidity in the rail network today, otherwise, we probably would have been in the typically in a typical hockey.
Six cycle that rail is so accustomed to.
And so as railroads continue to improve which they are and as velocity continues to improve and it's going to give them an opportunity to increase their market share and for customers, who want to use rail, which there is quite a number of them to be able to add assets and I think that's where our long term plans even through.
These turbulent economic times.
Got it that's helpful. And then I just want to ask on maintenance. It seems like a lot of the benefit that you had in the margin. This quarter was really greenbrier driven less on the volume side.
Can you maybe talk a little bit more I know you said that there is some to some extent labor, but what youre doing there and just how we should think of that you know that margin through cycles. Just can we take a step up here from the efficiencies you're seeing what are sort of too soon to tell on that side just any thoughts.
Yeah, I would say that the maintenance business is probably the toughest part of of all of our businesses.
I'm proud of what that group has been able to do by focusing on the workforce that we have thinking differently about how we.
Bring them and how we train them this is Ed.
It's difficult work oftentimes and not the most glamorous locations or conditions.
As we grow our fleet of railcars that we own and manage having a strong network is going to be important as we maintain our own fleet granted that you can't always do that because it depends on geography, but I'm I'm pleased with the progress that they've made and I know that they are very focused on.
On continuing their effort.
Great. Thank you.
The next question comes from Ken Huckster of Bank of America. Please go ahead.
Hi, This is animas koski on for Ken extra Thank you for taking my question.
Maybe just a question on the backlog.
It is up but it's the second quarter of sequential declines, maybe just talk a little bit about that softening.
Some of the end market demand exposure there.
I think it's more a matter of.
Not necessarily a weakening environment, it's more a matter of us continuing to exercise discipline when.
Deals don't necessarily meet our hurdle economics and bear in mind that we're booking now 910 11 months on certain lines.
16 months on other lines and so.
Cause of that robust nature of our backlog were not always able to hit our customers' delivery requirements. So we continue to see robust activity. We saw that Inc. Fiscal Q4, we continued to see robust activity subsequent to that and continue to kind of expect to see that for the future. Brian I don't know if you have any other.
Color, yes, absolutely I mean.
First of all I agree Justin.
We're being selective at this stage on what orders, we considered but I can tell you that the cadence.
Of orders continues to be very much in line with previous quarters.
So and the sales pipe.
Inquiries continue to be strong so we're still building a tremendous volume in fact in some respects record volumes.
Inquiries for opportunities, but given that we have a nice long backlog and we have visibility well into our next fiscal year, it's an opportunity to be a bit more selective as well.
Got it appreciate it.
And then maybe just a broad question on the expansion of the services business to reduce cyclicality.
Thinking over the next couple of years.
Where do you see sort of an optimal mix and what are some of the decisions on your end that go into that.
Sure so.
We have the fortunate position to be able to talk be talking to a broad number of customers I'd say, our leasing and services team has done a great job in a short amount of time that we have at the Gtx leasing facility.
<unk> platform created where we're developing that.
<unk> portfolio of railcars, so I think you know.
As our markets remain in demand remains diversified that'll give us a great opportunity to continue to add.
Do have the flexibility because of our capital markets group to be able to syndicate. If we don't feel like it's the right time to be adding to that lease fleet, but I think.
From a long term perspective, I would see just a steady step up in investment in those leasing assets because they do provide.
That stability.
In cash flows and earnings that's a nice.
Offset to that typically more cyclical manufacturing again right now with manufacturing, we're having some nice.
Steady rational activity. So that's great. So I'd love it if both manufacturing and our leasing platform continued on this upward momentum.
Neck and neck with each other and stable.
Got it and then just one last one you mentioned most of the order activity is replacement demand.
Is it a matter of congestion scrapping.
When are you viewing this to maybe inflect more into.
New activity.
Yes. So this is Brian a lot of the activity today.
I would say it's twofold, it's there's a lot of scrapping going on as people have seen over the last couple of years high scrap prices and an aging fleet, particularly when you think about boxcars and the 70 ton C. Boxcar fleet and you think about the gondola.
They continue to have very high attrition rates over the next four to five years. So that tailwind will continue youre also seeing some uptick.
And biodiesel.
Facilities and other organic growth. So it's not just at this stage.
For the record.
Placement demand there is some organic demand going on as well, where we see the real opportunity long term is as the railroads become more fluid we have a number of shippers that want to do even more some of it for ESG compliance reasons. Some of it just because it's still the best mode of transportation and the river.
<unk>, becoming what they are the Colorado River and mainly the Mississippi, which is really the workhorse of the U S.
There's opportunities for railroad to continue to increase share as they gain more and more fluidity. So.
Again, we see it kind of a three legged stool.
That's it from me. Thank you so much.
Thanks, Adam.
The next question comes from Steve Barger of Keybanc capital markets. Please go ahead.
Thanks.
Wanted to make sure I understand the margin commentary when we should expect manufacturing gross margin or consolidated gross margin in the first half will run below what you saw in <unk>.
We don't give any explicit guidance, Steve and again, we're kind of focus more on the overall of fiscal 'twenty three without giving explicit guidance that we think it'll be low double digits, possibly weighted more towards the back half, but you know as.
As I think about it we we finished the fourth quarter of pretty strong we're happy with what we've done and we expect to continue to improve on what we've done now again you've seen us.
In years past right, there's going to be some volatility when you start stepping down into the segments manufacturing versus syndication activity versus our maintenance activity that makes those consolidated margins, maybe not always be on a perfect trajectory.
One thing I would add Steve is is with the high volume or a large percentage of our railcars that are being produced that are going onto the balance sheet. We have less syndication activity occurring. So we do not see a step backwards in manufacturing margins I want to be very clear about that.
But the.
More profitable syndication part of our business is going to be back half weighted and that's what's driving the earnings cadence.
Yeah understood I, certainly I'm happy to hear that youre, not going to step backward and manufacturing margin.
But just to help level set expectations. When you look at mix and you know obviously, there's challenges in Europe right now and just general economic conditions would you expect first half 'twenty three EPS can exceed last year's first half of 17.
Yes.
Perfect. Thanks, and Lori you said Greenbrier as assets are strong cash generators, but operating cash flow was negative over the last few years and after net capex free cash flow was lower than that are you, saying positive operating cash flow and positive free cash flow. After net investment are achievable this year.
Yes that is what we believe.
So that's great to hear and finally, just one last one for me SG&A as a percent has been volatile over the past couple of years as the topline has moved around if you hit your revenue goal for the year, how should we think about SG&A spend in dollars for fiscal 'twenty three.
Yes.
Okay.
We're guiding to.
$220 million to $230 million for the year.
Great. So I think I missed that.
Yes.
Alright, thanks very much.
Thank you Steve.
Our last question will come from Justin long of Stephens. Please go ahead.
Thanks for taking the follow up I just wanted to circle back on some of the questions around manufacturing margin specifically, so it sounds like you're not expecting a step back I am guessing thats for the full year, but is there any color you can give on the cadence of manufacturing gross margin.
That you would expect similar to what you said on consolidated margins.
Yes. This is Justin then evidently go out on a limb on this one so we do not see a step back.
In manufacturing margins at all.
And especially in the first half of the year and we do expect to see some expansion.
<unk> kind of throughout the year so.
I think you saw a relatively large step up from our fiscal Q3 to Q4.
And with the majority of the ramp behind US. This is more a matter of continuing to take cost out of the system fine tune the efficiencies and <unk>.
At this point, we expect to make positive progress on that activity throughout the year now the thing we've learned over the last two years is.
There's a lot of volatility in the world. So.
But that's what we see based on our production schedules based on our backlog.
And.
It's going to be a good year.
Got it and last thing I wanted to ask about was Noncontrolling interest that's something that can swing the numbers around a good bit any thoughts on where you could shake out in fiscal 'twenty three.
Yes, that's a good question Justin and it really as you said it is.
Definitely it can be very volatile depending on our production activity in Mexico, and what's going on in Europe . So we would see it being.
Probably.
Higher.
Then it was in fiscal 2022.
But not necessarily.
You know.
Doubling or tripling at this point our production plan is relatively stable in northern Mexico, and then its a matter of.
Kind of getting into the earnings ramp in Europe that we expect and Justin just to be clear. It would also be the timing would be impacted by syndication timing very much. That's it that's a great point Laurie Thank you.
Makes sense I appreciate the time congrats on the quarter.
Thank you, Jeff and thank you.
This concludes our question and answer session I would like to turn the conference back over to Justin Roberts for any closing remarks.
Thank you very much everyone for your time and attention today. If you have any follow up questions. Please reach out to Investor relations at G. B, Our AG Dot Com. We are very excited about the year and are proud of what the team has accomplished in the last 12 months. Thank you and have a great day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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