Q3 2023 The Greenbrier Companies Inc Earnings Call
[music].
Hello, and welcome to the Greenbrier companies third quarter of fiscal 2023 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 now like to turn the conference to Mr. Justin Roberts, Vice President and Treasurer, Mr. Robert You may begin.
Thank you Anthony.
Good morning, everyone and welcome to our third quarter and fiscal 2023 conference call today, I'm joined by Lorie to Korea's Greenbrier as CEO and President, Brian Comstock Executive Vice President and Chief commercial and leasing officer, and Adrian Downes, Senior Vice President and CFO .
Following our update on Greenbrier as performance in Q3, and our outlook for fiscal 2023, we will open up the call for questions in.
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 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 will hand, the call over to Laurie. Thank.
Thank you Justin and good morning, everyone I hope everyone's enjoying the start to summer.
Yesterday, we announced that <unk> will join the Greenbrier Board of directors.
Like to publicly welcome Pat to our board and look forward to working with Pat to give his perspective on the freight rail market as well as his insight into the U S Mexico activity.
As many of you know Greenbrier hosted our inaugural Investor Day on April 12.
For those of you who are unable to attend in person or via webcast. The replay will be available on our website for a short period of time and the full presentation will be available forever at the SEC website.
And during the three hour that we touch on four areas.
First our leadership position in our markets.
Second our diverse manufacturing capabilities and long track record of innovation.
Third our strong lease origination capabilities and differentiated syndication model.
And lastly, the consistent improvement in our financial performance across economic cycles.
We also laid out green bar strategy to increase margins in our manufacturing segment.
Our recurring revenue base for lease fleet investment.
And follow our capital allocation strategy focused on returning value to shareholders.
And while it's only been two months since the Investor day I'm pleased to share the progress we've made in each of these areas.
In some cases, we're ahead of our own internal schedules and in others, we're laying the foundation to execute our strategic plan.
And as I briefly recap results for this quarter I'll highlight some achievements towards these goals with the important caveat that we do not expect our progress to be linear and our strategic plan and targets contemplate a five year time horizon.
So turning to the quarter, we generated revenue of $1 billion.
Our deliveries totaled 6600 units down from Q2 due to the timing of syndication activity.
And while revenue just slightly compared with the prior quarter aggregate gross margin improved by 190 basis points to 12, 3%.
Increasing our aggregate gross margin to the mid teens by fiscal 2026 is one of the targets. We provided during the Investor day, and we're pleased to report the progress on that front.
Gross margins in manufacturing at nine 6% increased 260 basis points compared with the prior quarter and some of the efficiencies we discussed during the Investor day materialize more quickly than expected.
And while there will be unforeseen issues that occurred during some quarters, we're confident that many of the efficiencies achieved thus far will continue.
In particular supply chain issues that have been a recent headwind seems to be largely in the rearview mirror.
And as we've discussed previously we're bringing fabrication in house for basic primary parts and sub assemblies as part of our make versus buy strategy.
The first phase of this work will be completed in the fourth quarter that we're in today and we expect to achieve our full cost savings target of 50 to 55 million in fiscal 2020 five.
Additionally, in the quarter, we completed the sale of Gunderson Marine in Portland.
As part of our capacity rationalization plan that is expected to result in annual savings of $15 million to $20 million.
These are costs that are getting taken out of the system permanently.
Gunderson rail completed its last railcar on May 18, after shipping over 110000 units since 1985.
I'm extremely pleased to share the gunderson, new owner will retain many of the hardworking production workforce in that facility.
Now moving across the business maintenance services continued the positive momentum seen since it started the year. This is my ongoing labor challenges.
Their margins continue to improve sequentially unimproved pricing volume and the operating efficiencies we've been focused on establishing over the last two years.
<unk> a strong end to the year from the second.
And as Brian will discuss shortly.
And the foundation for expanded leasing strategy.
This is an important component of our multiyear plan and is expected to result in a doubling of recurring revenues within the next five years.
The market backdrop for leasing remains very positive and we're in a great position to execute our plan.
Now returning capital to shareholders is an integral part of our capital allocation strategy.
I'm pleased to report that our board increased our quarterly dividend by 11% to 30 cents per share yesterday.
Our dividend has doubled since its reinstatement in 2014 and illustrates the importance the board places on this activity.
The broader economic background is somewhat mixed with several factors, creating economic cross currents.
Spite, the ongoing economic murkiness or outlook in North America remains unchanged with railcar deliveries to be at or near replacement levels for the next few years.
In Europe , there's softness in demand for intermodal wagons, but this is being more than offset by the bulks rail freight sector, where we continue to see strong demand across wagon types.
Backdrop aside at the company level, we continue to take actions to create a stronger more sustainable Greenbrier.
We're confident in the long term strategy, we set forth during our Investor day, and our team's ability to execute on that strategy, which is focused on the things, we can control and not reliant on overly optimistic demand scenario.
I look forward to sharing our progress towards these targets on future calls.
Now I'll turn it over to Brian to discuss the rail car demand environment and our leasing activity.
Laurie.
Q3, Greenberg secured new railcar orders of 4600 units worth $650 million.
Subsequent to the end of the quarter, we received orders for 7900 units valued at 975 million.
Orders continued to be broad based and diapers across most railcar types with the exception of intermodal.
As of May 31st Greenbrier as global backlog was 23400 units valued at 2.9 billion yes.
This figure excludes the 7900 units ordered after the end of the quarter.
As a reminder, our new railcar backlog does not include 1000 units valued at $85 million that are part of Greenbrier railcar conversion program.
Despite weakness in freight volumes the railcar demand environment remained stable due to pent up replacement demand and tight supply.
And we continue to see healthy railcar enquiries and orders for a variety of railcar types.
We are pleased with the performance of leasing and management services in the quarter.
Our lease rates.
On renewals are increasing by double digits, and we are extending lease terms, while maintaining a high fleet utilization of nearly 99%.
In terms of the underlying leases the durations are staggered both mitigate the impact of cyclicality.
And great upside potential through favorable renewals.
We do have a high volume of renewals in 2024, resulting from the portfolio. We purchased in September of 2021 and we are actively working to renew these leases ahead of their expiration.
As we described during the Investor day, we intend to grow more steadily over the coming years.
And we have committed to invest 300 million per year for each of the next five years on a net basis.
We remain focused on railcar types that will maintain a balanced fleet portfolio.
And reduce concentration risk.
I want to emphasize that we will only invest in the right assets with the right lease terms and counterparties.
During Q3, we funded 54 million of debt from our non recourse leased railcar warehouse facility.
High $72 million of assets.
And have funded a total of about $140 million.
Through the warehouse over the last two quarters.
As you may have seen in our press release. This morning, we recently Upsized, our warehouse facility to $550 million from the prior $350 million borrowing capacity to support our growth plans.
Terms of the Upsized facility are unchanged.
Fourth quarter fleet activity and the warehouse facility will continue to be leveraged at a 75% debt to equity ratio.
We are regularly evaluating our financing strategies as we prepare to meaningfully increase the size of our lease fleet with the goal of more than doubling recurring revenue in the next five years.
As you heard during the Investor day from William Glenn who had Greenbrier its European operations.
We are building a leasing capabilities in Europe .
Our entry into the European leasing is well ahead of plan in the pipeline for leasing deals is robust.
Luding finalizing our first syndication agreement.
Our capital markets team syndicated 800 railcars in the quarter.
A decrease from Q2, reflecting the timing of production schedules.
This market remains liquid and strong appetite for the asset class and our team is preparing for another busy year in 'twenty 'twenty four.
Within management services, we continue to shift our commercial focus and business development efforts towards customers, whose needs are more closely aligned with our core competencies.
As we seek to deepen relationships within our customer base.
This is an exciting time for Greenbrier as we work to optimize our manufacturing capabilities and grow the leasing and manage my business.
We have been clear with our growth initiatives and I look forward to updating you on all of them as we execute on our strategic plan.
With that said I'll hand, the call over to Adrian who will now speak to the financial highlights in the quarter.
Thank you, Brian and good morning, everyone before moving on to the highlights of the quarter I would like to remind everyone. The quarterly financial information is available in the press release and supplemental slides, which can be found on our website.
Our performance in the quarter was strong across all business segments with improved aggregate gross margin and adjusted EPS in Q3 compared to Q2.
Following the highlights.
Okay.
Of note for the quarter include the <unk>.
<unk> consecutive quarter with revenues of $1 billion or higher.
Deliveries of 6600 units was the second highest quarter for deliveries since the fourth quarter of 2019 and includes 200 units from our unconsolidated joint venture in Brazil.
Aggregate gross margin of 12, 3% was 190 basis points higher than the prior quarter, resulting from stronger margins in the manufacturing and maintenance services segments attributed to improved operating efficiencies in both segments and higher pricing and volumes and the maintenance services segment.
We expect the operating momentum will continue as a result of the initiatives described during the Investor day in April .
Selling and administrative expense of $63 million is 7% higher from Q2, primarily attributed to an increase in employee related costs due to higher incentive compensation expense as a result of increased profitability.
We had a pretax charge of $17 million related to the sale and excess of our gunderson marine business in Portland.
The consolidated tax rate of 12, 9% was primarily a result of favorable discrete items in Mexico.
Yeah.
Excluding the impact of the gunderson loss on sale and exit related costs.
Adjusted net earnings attributable to Greenbrier of $34 million generated adjusted EPS of $1 <unk>.
Additionally, adjusted EBITDA for the quarter was about 97 million or nine 3% of revenue.
Turning to liquidity Greenbrier as operating cash flow turned positive on a year to date basis due to our strong third quarter and.
Sorry, due to strong third quarter results of nearly $98 million, reflecting improvements to operating performance and working capital efficiencies.
Our liquidity was 665 million at the end of Q3, consisting of cash of $321 million and available borrowings of $344 million.
The primary use of our cash during the recent quarter included the repayment of $95 million of short term borrowings on our domestic revolving credit facility as well as $32 million of share repurchases.
As we finish 2023, we expect Q4 liquidity levels to remain strong as operating momentum and working capital efficiencies continued to improve.
As highlighted during our Investor day in April one of Greenbrier strategic initiatives is a balanced approach to capital allocation.
And integral part of the strategy is to return capital to our shareholders through dividends and share repurchases.
During the third quarter, Greenbrier repurchased one 2 million shares for $32 million.
Between the second and third quarter, Greenbrier repurchased a total of one 7 million shares for $49 million of which 3 million was part of the prior authorization program.
Under the current share repurchase program, we have $54 million remaining of the 100 million authorization that extends through January of 2025.
In addition to significant share repurchase activity the board increased the dividend by 11% to <unk> 30 per share representing our 37th consecutive dividend.
Based on yesterday's closing price our annual dividend represents a yield of approximately three 7%.
Since 2014, Greenbrier has returned over $470 million of capital to shareholders through dividends and share repurchases.
Our board and management team remain committed to a balanced deployment of capital designed to create long term shareholder value.
Turning to our guidance and business outlook based on current trends and production schedules, we are raising greenbrier as fiscal 2023 guidance, which includes the following.
Our fiscal 'twenty three.
Liberty's guidance is increased to 25000 to 26000 units, including approximately 1000 units from Greenbrier Maxion in Brazil.
We're also increasing our fiscal year 2023 revenue guidance to be between $3 8 billion and $3 9 billion.
Selling and administrative expenses out approximately $230 million to $235 million.
And gross capital expenditures of approximately $280 million and leasing and management services.
19000 manufacturing and 15 million in maintenance services.
And proceeds of equipment sales are expected to be approximately $76 million.
Consolidated gross margin is unchanged and we expect full year consolidated margin percentage to be in the low double digits.
In closing I'd like to reiterate a few points we.
We are confident in our long term strategy as highlighted at our Investor Day I believe the best is yet to come.
Our management team is incredibly experienced with a demonstrated track record of success.
They're supported by a robust backlog, which provides strong visibility and stability over the coming years.
Our liquidity and balance sheet strength allows for opportunistic growth.
And as we look to strongly finish our year, we are well positioned to drive shareholder value and two in 2024.
Now we will open it up for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one of your telephone keypad.
If you even a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Again, we ask that analysts limit themselves to only two questions.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Matt <unk>.
Caught with TD Cohen you May now go ahead.
Good morning. Thank you Lorie can you maybe first a quick clarification what was it specifically that made it possible to achieve those manufacturing efficiencies ahead of plan.
A great question, Matt I would say, it's tremendous hard work and focus by the men and women in our manufacturing operations as Youll recall last quarter, we talked about second quarter, we talked about the headwinds that we were struggling Westwood supply chain and our focus on how.
To reverse that trend.
This is one of the areas, where we're seeing improvement ahead of what we thought internally, we would be able to achieve as not just greenbrier, but as many companies have seen over the last several years supply chain can be one of those things that can be a persistent headwind.
Headwind or it can pop up sell.
I'm, just pleased with with the focus and attention and execution and our manufacturing grid.
Got it. Thank you for that and then were there any big orders from a single customer in either of the 4600 in the quarter or the 7900 ER after.
Well I'll, let Brian chime in in a minute if he'd like but actually yes, we had several large orders, but nothing that was really a multi here or something that drove that that was strong diverse demand across a number of customers car types commodities and a nice healthy combination of lease originations as well.
There's direct sales Brian is there anything you'd like to add.
No I think you hit it Laurie, but you know basically it's kind of the normal blocking and tackling we had several large orders are not just one or two but also we had kind of the diversity of what we see every day some of it was pent up.
From earlier in the quarter, which we thought would come in in Q3, and it's alright, there are in the <unk>.
Previous quarters now coming in now, but it's just kind of the run of the mill no multiyear orders, just you're kind of standard fare as far as the order cadence in order a diversity.
No. That's good to know O'brien and there was a 10% sequential step up in the a S. B how much of this was mix versus other factors because.
After the you know for the 7900 after Q3 I think the ASB goes back down to being 4% below to queue.
Yeah.
Yeah, I think the mix is it's it's a better mix, we're starting to see a little bit more automotive products.
As well as tank cars into the mix as you know one of the focuses of.
The industry has been continue to do pricing into a a better places wallet. So I think you're seeing a combination of.
A better mix as well as.
Continued.
Uplift in pricing.
Okay, and just one last one if I may are you know more often than not your your first fiscal half as the lower for.
You know everything basically deliveries margins earnings do you expect this to be the case for fiscal 'twenty four even as this really is a highly anomalous cycle.
So I'll jump in and then I can let others join it.
I'm sorry.
A little bit of a chuckle, because you're right we do tend to.
Spike in the second half and then a little bit muted for a variety of reasons in the first half of that has not gone without our own acknowledgment of that trend and we are very focused on how can we make certain that quarter after quarter, we continue continuous improvement.
From orders deliveries margins.
Cash flow. So you are going to see that sort of focus again its hard to perfectly predict if there is going to be something that pops up but.
We're not planning to have the first half of next year it'll be soft we're planning for fiscal 'twenty four to be better than 2023, and we're working to make that be continuous improvement quarter after quarter.
Got it thank you very much lorie thanks, Brian .
Thanks, Matt.
Our next question will come from Justin long with Stephens you.
You May now go ahead.
Thanks, and good morning, maybe to follow up on that last point you made lorie when you look at the industry projections for railcar production in 2024 on a calendar basis, a lot of those forecasts are down a decent amount so I'm curious.
If you could talk about your view on just broader industry production as we move into your fiscal 'twenty four and based on the backlog you have today, including the orders you just received here in June can you speak to your level of visibility to production in 2024.
This point.
I would say for 'twenty 'twenty, four and we've got really good visibility and we still do have some pockets, where we have open production, but we feel very comfortable about the ability to fill up that space right now what we're seeing in North America is pretty steady production coming out of where we're going to close out the fourth quarter.
We don't have any big ramp ups or any big ramp downs will have some adjustments, but some of the recent orders that we've received really gives us great visibility and continuity.
Number of our production lines.
The other interesting thing that if you're just looking at the North American Statistics, you also have to look at Europe , where we're continuing to focus on how we can serve that market.
Focused on ramping up.
Production in Europe , as well, it's not quite the same volume as you would see here in North America, but that will be one of the benefits to our deliveries and our fiscal 2024.
Okay, Great. That's helpful and I guess shifting to manufacturing gross margins. It was good to see the sequential improvement could you speak to how much of that came in North America versus Europe , and then as we think about manufacturing gross margins going forward what's your.
Comfort that we'll continue to see some sequential momentum moving into the fourth quarter and early next year.
Hey, Justin This is Justin I think and we saw improvement both in North America and Europe in the quarter.
North America is.
A disproportionate waiting there just from a size perspective of both operations performed very well and improved sequentially and then going forward. We would expect that to continue maybe not quite to the same extent, but we do see.
Improvement in Q4 and into fiscal 'twenty, 'twenty, four which is kind of hard to believe we're talking about already but such is life.
Okay. Good to hear I'll leave it at that thanks for the time.
Thanks, Justin.
Our next question will come from <unk> majors with Susquehanna you May now go ahead.
Thank you as we look forward I realize where we're still a ways from next fiscal year, but do you have a sense of the cadence of when you'll put cars on the balance sheet and off the balance sheet in the a and the manufacturing business.
I think at this point, it's a we're not necessarily ready to get into that much detail I would say that we will we do see a relatively consistent pattern of that each quarter over the next four to five quarters based on production schedules on backlog.
Thank you for that and now that most of the supply chain issues and in Mexico, and the U S are behind you fingers crossed.
Is Europe .
As Europe accretive to the overall manufacturing margin are those pretty even.
Yeah.
I would say, yes. It is accretive as Justin said, it's it's accretive even when you take into consideration. The fact that the waiting I mean, North America is one of the largest freight railcar markets in the world. So it's gonna be hard to for Europe to up in that but they're definitely accretive to our margins.
And you know lastly speaking.
Can you talk a little bit about.
The willingness to risk longer term capital from some of your leasing customers I know you don't have.
The same length and duration and size of multi years with some of your competitors, but you know just what's the appetite for the leasing companies as we look out. The next 612 18 months, how has that sales channel work and do you expect that to be supportive of a fairly steady production rate for the industry over the next year or two.
Thank you.
That's a great question basket and then I was gonna CFO , Mr. Comstock can handle it.
Yeah. Thanks, Justin.
Thanks for asking.
One of the one of the areas that I think I reported on this maybe last quarter as well as we are seeing an increased interest by the operating lessors, they're traditionally in the market, but over the last couple of years due to Covid and other reasons, there's been a little bit of a pullback we're seeing more.
And more confidence on the operating lessor side, which is driving as you suggest more stability in the manufacturing as well as <unk>.
Some of this order pipeline and we think that's going to continue to build momentum.
Throughout the rest of this year into a into next year.
And from a syndication channel any comments on that customer.
Are they starting to get comfortable with the cost of capital and in rising interest rates. Just you know do you think that is a growth opportunity or at least an opportunity for stability in your business as we look out 612 18 months.
And Justin I can grab this one as well yeah. Yeah. We do you know the returns the returns are still very strong as you know interest rate pressures have put a lot of.
A lot of.
Really a lot of pressure on that side of the house, but the deals that are coming in are all hurdle have the appropriate internal rate of returns and so as a result, we're seeing more and more interest in fact, we're seeing even some new entrants.
That are enquiring about coming into the space. So we felt pretty good from a liquidity standpoint, and long term, we think the our syndication customers are are pretty comfortable.
Thank you for your time.
Our next question will come from Kenn Hoekstra with Bank of America.
You May now go ahead.
Great Good morning.
So if I could just kind of follow on a little bit on on bathrooms question. There Laurie maybe talk a little bit about the balance of the leased fleet versus the build.
For external sales in manufacturing it it seems like we've got a lot of volatility volatility where you know maybe it's you'll get the consistency. After you get the ramp up so where are you getting closer to the full ramp up on that production for the internal build versus external sales I just want to understand how we should think about that given given the bill to revenue kind of take follow.
Sure.
Thanks, Ken Yes, it's a good question and what's interesting is you have to step back and look at the strength.
Hello.
Originations so same customers same car type same commodity.
While we are growing our on balance sheet lease fleet is still a fairly modest sleep and sometimes the size of those orders are such that it would really skew our concentration.
I don't mean to interrupt but your line went quiet for like the first third of your answer I'm, sorry to do it but I am getting I'd be that other people. It went quiet to do you mind, just starting from the beginning there.
Oh My gosh. It was the most brilliant thing I've ever seen.
Yeah.
Yeah.
So it's probably because everyone every one of our field salespeople was hurriedly calling in because I was complementing our.
Our sales can you still hear me yeah perfectly.
Okay.
We often can originate some very large leases.
So a large number of cars the same customers same car type same commodity.
While we are excited to grow our on balance sheet lease fleet. It is still at a relatively modest and I'm, probably being generous side. Therefore any of those orders.
Really skew our concentrations and any number of those areas. So we will continue to work with our syndication partners. So that we can.
Diversify and keep that disciplined approach to how.
How were growing our on balance sheet portfolio.
Times are syndication partners or not as keen on our fiscal year at quarter end or year end as others might be so we're going to take those opportunities when they arise and we're going to close those transactions as appropriate for the business. So that will continue to cause some lumpiness from quarter two.
A quarter, but you can understand that they the basis is we've got strong commercial.
Origination capabilities.
And we're keeping an eye on having a very disciplined approach to how we're growing the fleet on the balance sheet.
And then I'll throw at you for my follow up on a quick numbers question. So I'll follow up with a with a kind of follow up question, but the backlog new orders came in at about 123 revenue per car down from your you printed 141000 in the third quarter is there anything more to that than than mix because that just seems like an extraordinary shifts.
And then I guess to wrap up <unk>, you said you weren't surprised by anything in the quarter. Yet you raised your outlook. So I just want to understand what changed was was there something in there that that did change that led you to to raise the outlook.
So I can on the E. S. P question R. R. S. T on the June order activity is more in line with our Q1 and Q2 activity and it really is just mix primarily.
From that perspective versus the Q3 and I think on the outlook question. Obviously, you Lorie you cannot.
Correct and chime in as needed, but bear in mind that we have as we have been working through and and navigating some of the supply chain issues. The first six months of the year were challenging and we wanted to make sure that.
We were able to perform as we expected and deliver cars on time to our customers and we we had some bumping is in the first part of the year. So now as that seems to have sunset and we are getting our operating momentum and getting our legs under us we are feeling more confident.
Wonderful thanks for the time I appreciate it.
Our next question will come from Allison <unk> with Wells Fargo Securities You May now go ahead.
Morning. This is Ryan debate on for Allison.
Congrats on the quarter.
Most of my questions were taken but I kind of want to just pick a little bit just kind of the smaller market here. So Brazil came in 200 in the quarter you Didnt really raise your delivery there that implies you know by my calc around 100 is that market kind of just softening or is it just a near term headwind that has like winter.
So this is Brian I can jump in Lorie, a bad question.
Right now in Brazil.
We're in a little bit and I say, a little bit probably over the next six months, there and a bit of a softer period only due to capital was granted some of the concessionaires in 'twenty 'twenty four it look.
Like things begin to rightsize as well as a lot of the expansion in Brazil continues to build momentum there is quite a bit of infrastructure and central Brazil and other areas that are being completed so we anticipate long term that Brazil is going to continue to grow.
However, right now there are more than a level state of play.
Okay. Yeah. Thank you and then I guess one more on the.
Refurbishment side on that backlog has been kind of declining or are we reaching closer to like an end of like market cycle here, where there's not as much activity on that side of the conversions or whatever it's called.
Just any color there would be great.
This is this is Brian I can dive in again.
The conversion side is is always lumpy and it it kind of moves up and down there are a number of cars that have been programmed already and there is kind of a finite shelf life to the conversions, but I still think there is seems to be at least a several years.
The opportunity on that side and then.
Kind of behind the conversions you've got these re qualification of the tank cars that are ramping up so I think what you'll see is just a shift.
Some of the large conversions to some of the large.
Tank car re qualification programs.
Perfect. Thank you very much.
Our next question will come from Steve Barger with Keybanc capital markets. You May now go ahead.
Hi, Good morning. This is Jacob more on for Steve Barger. Thank you for taking the questions.
So for my first one just going back to the cost savings initiatives that you laid out at the Investor Day could you talk specifically about the actions that you've already got complete maybe quantify how much of that $50 million to $55 million.
<unk> already achieved and then also maybe just a quick clarification on the 2015 to 20 million in savings from Gunderson exit is that now fully out of the system moving forward.
Hey, Hey, Jacob this is Brian It seems we've lost our Lake Oswego, I think theyre, having some communication across.
Problems I can address.
The first part of that question for you, which is on the on the 50 to 55 million of cost savings.
We're probably we're still in the empathy of Imp.
Implementing that plan. It is ahead of.
Schedule as you see from the.
As you can see from the Oh, you know from this quarters earnings but.
We anticipate that that will continue to develop a really throughout the next fiscal year.
Got it understood and then.
Maybe this one's a little bit better suited for you anyways, Brian for my second question just broadly overall rail traffic is down.
It seems to be holding in there, but lackluster traffic trends are starting to compound at this point. So my question is really in all of the work at the halfway point of the year could you expand on the earlier landscape comments and maybe provide an updated outlook on rail traffic trends for the remainder of the year.
Yeah, there's undoubtedly when you look at the traffic side of the equation.
Velocity is improving a bit there's a number of segments that are down because the number of segments.
In the rail industry that are still fairly robust auto.
There's a tremendous amount of pent up demand, there's a number of new facilities coming online. There are several new plastic pellet facilities that come online in late 2020 for early 2025 biodiesel continues to be a fairly robust.
And a lot of new facilities coming online in that area as well and then you still have a tremendous amount of retirements of older cars as well as a small number of cars in storage. So while there are some headwinds in.
And the overall outlook the build cycle still looks fairly level.
At least we believe so over the next you know.
18 to 36 months.
Pending any.
The major change in the economic conditions.
Got it.
Thanks.
Oh, Yeah go ahead.
Can you hear us okay.
Yes.
So I just wanted to check and make sure that we're still broadcasting here sorry, we've had a few technical difficulties. Thank you Justin triggered a phone and just to touch on your other comment about gunderson there'll probably be a little bit of we won't have realized all of that permanent.
<unk> and our fourth quarter, but you know as we get into the early part of our fiscal 'twenty four and that will be wrapped up and we're just working with the new owner stretching transition services.
Got it understood. Thank you for taking my questions.
Thank you.
Again, if you have a question. Please press Star then one on.
Our next question will be a follow up from Matt Alcott with P. D. Cohen you May now go ahead.
Thank you for taking my follow ups are there I think this is for Brian Brian .
Leases coming up for renewal in 24 that you mentioned, if you are able to get them renewed earlier you know the the market is pretty hot right now what kind of rate improvement do you think you can get.
Expiry I don't know what it is renewal sorry yep.
Good question, Matt you know a lot of the so a lot of the renewals that we're seeing in 2024 related to the purchase that we did.
Back in 2020 one.
<unk> that we acquired and a lot of those rates War I would say sub market rates at the time.
And so we believe we're seeing.
Quarter over quarter double digits, but in those cases, we should see a much.
Much larger double digit increases in our renewals in 2024 at least that's what we're predicting at this stage Matt.
And how many cars are those.
Hum.
That's a great question I don't have that at my fingertips, but I'm sure you can get back to you on that.
Yes, I would just say, it's about 2000 cars.
Okay. Thanks, Justin and then just maybe one more question for Justin or Lorie, you're pretty close to the mid teens aggregate gross margin target for 26. This quarter. So first you know any updated thoughts on the Stargate and second can you remind us what the target is contingent on.
Do we have to be in the demand up cycle does it work at a piano at replacement level or below replacement level demand because of the recurring parts of the business should grow.
So good question, Matt and I would say that the.
The targets are based on more stable demand so not you know.
A boom market.
And I think while we're excited about the achievements that we've received in the third quarter, we'd like to get it.
Quarter, two of continuous improvement under our belt before we will consider adjusting those five year targets.
Okay got it just one last one I probably should know this but.
Have you guys said, what's going to happen to Gunderson, what kind of what what you see is it going to be used for.
Oh, yeah, if that hasn't come through so it was purchased by a local operation here run by a couple of local Portland people, Oregon Green manufacturing, they're gonna continue marine activities, but theyre going to expand more broadly than we were able to do and I think they're looking at some other.
That'll delving metal bending activities or possibly some other infrastructure work.
But but no railcars are going to be manufactured there anymore, yeah, alright, I should've been clearer and I've got no railcars got.
Got it great. Thank you very much.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mr. Justin Roberts for any closing remarks.
Thanks, Anthony sorry for the technical issues. This morning appreciate your patience I hope everyone has a great day and if you have any follow up questions. Please reach out to Greenbrier either myself. If you have my email or Investor relations at <unk> Dot com.
And have a great day, how happy independents, we can be safe.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.