Q1 2024 GATX Corp Earnings Call
Good morning, My name is Dennis and I will be your conference operator today at this time I would like to welcome everyone to the G. A T X Corporation first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
To ask a question simply press Star then the number one onboard telephone keypad to withdraw your question Press Star one again.
I would now like to turn the conference over to Shari Hellerman head of Investor Relations for Gtx Corporation. Please go ahead.
Thank you Dennis.
Good morning, and thank you for joining Gatx's 2024 first quarter earnings call.
I'm joined today by Bob Lyons, President and Chief Executive Officer.
And Tom Ellman, Executive Vice President and Chief Financial Officer.
Shari Hellerman: As a reminder, some of the information you'll hear during our discussion today will consist of forward looking statements.
Actual results or trends could differ materially from those statements or forecast.
For more information please refer to the risk factors included in our earnings release and those discussed in Gatx's Form 10-K for 2023 and elsewhere in our filings with the SEC.
Shari Hellerman: G H T X assumes no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances.
Before I provide a quick recap of our first quarter results.
I like to remind everyone. Our annual shareholders meeting is scheduled on Friday April 26 at nine a M central time.
It will be held in a virtual only meeting format.
G. H T X reported 2024 first quarter net income of $74 3 million or $2.03 per diluted share.
This compares to 2023 first quarter net income of $77 4 million or $2.16 per diluted share.
The 'twenty 'twenty four first quarter results include a net positive impact of 0.6 million or two cents per diluted share from tax adjustments and other items.
The 2023 first quarter results include a net negative impact of one 3 million or four cents per diluted share from tax adjustments and other items.
These items are detailed in the supplemental information section of our earnings release.
Our first quarter results and the operating environment were in line with our expectations coming into the year.
Gatx's rail North America's fleet continues to perform very well with utilization of 99, 4% at the end of the first quarter.
Our renewal success rate also remained very high at 83, 4%.
Shari Hellerman: We continue to achieve very strong renewal lease rate increases while also extending term.
The renewal rate change of Gatx's lease price index was positive 33% for the quarter.
And the average renewal term was 64 months.
Additionally, we continue to successfully place new railcars from our committed supply agreements with a diverse customer base.
We have placed all 4800 railcars from our 2018 Trinity supply agreement.
And we've placed all 7650 railcars from our 2018 Greenbrier supply agreement.
Shari Hellerman: In addition, we've placed over 3600 railcars from our 2022 Trinity supply agreement.
Our earliest available scheduled deliveries under this supply agreement is in the first quarter of 2025.
During the quarter. We also selectively sold railcars in North America, and generate a $33 million in asset remarketing income.
We expect the secondary market to remain robust and anticipate remarketing income to be evenly paced across quarters for the balance of 2024.
Rail International had a solid start to the year with stable utilization and a total of over 1000, new cars delivered between Europe and India during the first quarter.
Both Gatx's rail Europe, Nul, India continue to experience success in pushing up renewal lease rates for most car types.
As we noted in the release, we renamed our portfolio management segment two engine leasing to reflect the operations of this business segment going forward.
The segment now entirely comprised of aircraft spare engine leasing activity.
In engine leasing RPF are joint ventures with Rolls Royce.
Wholly owned engine portfolio are performing well and continuing to benefit from the strong growth in international passenger air travel.
And with that quick overview, we can open the lineup for questions.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.
Your first question is from the line of Matt Alcott with TD Cowen. Please go ahead.
Good morning, Thank you.
Can you just talk about the absolute lease rates and how they've trended in the quarter.
Sure, Matt, It's Bob I'll take that one.
Shari Hellerman: Now, whether it's versus last year's first quarter.
The fourth quarter relatively flat.
And again keep in mind.
We've had a really substantial increase in lease rates over the course of the last couple of years.
So they have leveled off.
Uh huh.
A very attractive level, hence the LTI coming in at 33%.
And based on the outlook for renewals will continue to see very positive uplift if rates just stay where they're at today.
Regarding that Bob.
What's your opinion do you think they will stay at the.
The current levels given what rail traffic is doing and you know velocity seems to be improving as well.
Do you think there could be some downward pressure.
Well I.
Don't see any impetus for downward pressure right now.
And likewise, we don't see a catalyst for anything really making rate rates spike up so our expectation and it was the expectation we had coming into the year.
And then they will.
At this level and consistency consistently at this level through the year.
Matt One thing Matt Im sorry. This is Tom one thing that you'll notice is that when there is some weakness in a particular car type you're tending to see scrapping activity increase so that supply and demand stays and stays in balance.
Yes that makes sense.
And then on the remarketing income.
Shari Hellerman: It was pretty pretty solid in the quarter.
Given the expectations coming into the year.
Are you guys still expecting what.
What you had been expecting at the end of <unk> you for remarketing income will have those expectations changed for the full year.
We still expect to be in that $90 million to $100 million range, Matt that we laid out at the beginning of the year and as you know remarketing is really difficult to predict quarter to quarter. It's the most difficult thing to.
To predict or to estimate quarter to quarter and we live it every day.
Now, it's a lot of different transactions a lot of different assets.
Rail market.
Trying to pin down the timing of those is difficult to do and we're always driven to do the most economic thing so.
It's it's tough to lay them out quarter by quarter, but we explore we expect to be where we were.
The range, we laid out coming into the year.
Okay, and then just one last question.
If we just annualize the first quarter youll be over.
$8 a share for the year, but your high end of your guidance is 770 is the.
Shari Hellerman: Variable here is it's a remarketing income work and where should we see the.
Kind of subsiding in the earning as for the rest of the year, where is it going to come from.
No it would be on the remarketing income side.
Speaker Change: Got it.
Because if we annualize the remarketing income from the first quarter, we'd be well above where we.
The guidance, we gave at the beginning of the year and we expect to be within the range, we laid out at the beginning of the year.
Perfect. Thank you very much.
Thank you.
Your next question is from the line of Justin Long with Stephens. Please go ahead.
Thanks, Good morning, I guess to start 10 by Deb tailing on that last question. It's helpful to get that clarity on remarketing income expectations, but last quarter. You gave a lot of segment level guidance in some ranges on 2024 expectations I know the guidance overall didn't.
<unk> from an EPS perspective, but did anything at the segment level change versus what you were anticipating at the start of the year.
Yeah.
No not really I mean, we're.
As we look out through the balance of the year and what occurred in the first quarter.
Speaker Change: I hate to use the word an eventful, but as planned.
The better way to look at it and Thats across every segment.
Okay, Great and second question is.
Investment opportunities I was curious if you could just comment.
On what Youre seeing in the pipeline today and any updated thoughts around the level of investment volume, we could see in 2024.
Tom you want to go ahead whatever.
So coming into the year, we expected that we'd see investment levels that were similar to 2020 threes $1 6 billion.
And.
If you look at what happened in the first quarter, where we did $375 million.
Kind of right on pace and our expectations for the year remain in that range.
Okay easy enough I'll leave it there thanks for the time.
Good afternoon.
Your next question is from the lineup Bascom majors with Susquehanna. Please go ahead.
I wanted to come back to remarketing income can you talk a little bit qualitatively about the depths and types and.
Just tenor of that market in North America today, and if theres been any shifts since 069 months ago.
You mentioned in the prepared remarks that you thought the cadence would be fairly even and it's typically been more lumpy than that is that just a function of the difficulty to predict when.
The deals close or is there something different about how you are managing.
Managing your books into the market this year versus what you've done in the past. Thank you.
Ask them I will take that one it gets really.
The kind of the Lumpiness occurs because of the timing of individual sales transactions.
No.
We don't put a book out and sell.
Cars to one buyer.
Do many many sales small sales to a lot of different buyers.
So getting all of those to line up and kind of predict within a given timeframe is difficult to do.
And we're certainly not going to force anything into a particular quarter.
If it doesn't make money.
And when it might not make economic sense. So.
Whether we get something in the second quarter or third quarter, we'd become indifferent, we want the best economic outcome for the shareholder.
In terms of the market overall, it feels really good the secondary market remains incredibly healthy active robust.
We said in 2023, when we came into the year or we thought.
Speaker Change: That it might taper off a little bit because interest rates were on the rise.
But that didn't happen and it certainly didn't happen in the first quarter, we don't see it happening based on the level of interest we get them and we're putting packages out there.
And it's from a pretty broad and deep buyer group. So we're encouraged by that.
And if I could ask a follow up I mean, you finally officially renamed the third segment engine leasing to reflect your focus there.
As your partner in the JV side of that business gets further along than some of its transformation is there an opportunity to perhaps restructure the JV longer term and bring more of that economics in house or it will just be might be more incremental growth continues to come at 100% ownership economics to you.
<unk>.
We're going to continue.
As we laid out at the beginning of the year to invest directly.
We expect investment levels directly on engines to be in that $250 million range again this year.
Again, those are very lumpy.
So each engines and $25 $30 million undertaking so predicting those on a quarterly basis can be tough but.
We are working on investment activity at the same level, we saw last year, which is very encouraging.
Within the joint venture itself.
Speaker Change: Roughly $250 million to $300 million of investment volume last year within the joint venture and we see that going up pretty sharply this year.
There are returning much more to a growth mode after managing the portfolio through the.
The Covid crisis.
In terms of restructuring the joint venture in the future and Thats.
Not something we're contemplating and certainly.
It's been a very beneficial joint venture for 25 plus years now for both parties.
And it works well in the current form.
Thank you.
Your next question is from the line of Justin Bergner with Gabelli funds. Please go ahead.
Good morning, everyone. Good morning, Ralph Bob.
Great.
Okay.
Justin Laurence Bergner: Sorry, excuse my first question relates to your comment.
That for railcar types that are seeing some lease rate softness on a sequential basis.
There seems to be this.
Offsetting dynamic whereby more of these cars are being scrapped can you elaborate on that yes.
Yes, Justin.
And talking about where you might see something in terms of lease rates. What that's referring to is matts question had to do with velocity and if velocity where to pick up for a given car types and a lessor tends to need less of them the market as a whole has turned.
Mid to scrap any excess cars, so that the market remains in balance and lease rates actually stays strong.
Okay. That's helpful and is that just a function of the scrap rates still.
Being compelling such that it doesn't take a.
Sort of meaningful change in the outlook for that car type to justify scrapping the car yeah. So it's both.
Feature of the scrap prices are strong on a on any kind of historical basis and people are just hanging on to cars because the challenges of getting incremental cars. So it's more a case of some of those cars towards the end of their life are being held onto until something comes up.
And people determine what we want.
We don't need a few.
Okay Gotcha.
Yes.
And with respect to the joint.
Sure.
I guess segment equity income sort of dropped this quarter compared to some recent quarters I guess, particularly the last quarter is that just a function of lower remarketing income in the joint ventures or any other dynamics worth calling out.
So the mix of income for the first quarter was very similar to what it was for the full year 'twenty three in both cases about 55% of the JV income was operating and about 45% was re marketing, but the app.
Absolute.
Dollar amount of.
Remarketing gains versus the fourth quarter were down a bit about $3 million or so.
Okay.
So just to be clear the joint venture.
Well it drove a lot of the upside surprise in 2023 is so far in 2024 delivering according to your plan I guess the broader engine leasing segment as well, yes, just to Echo Bob's opening comments, yes, yes kind of across segments Thats, what were seeing inclusive of engine lease.
And within engine leasing inclusive of the JV.
Alright, Thanks, Tom and thanks for taking my questions.
Okay.
Brendan Michael McCarthy: Your next question is from the line of Brendan Mccarthy with Sidoti. Please go ahead.
Yeah.
Hey, good morning, everybody. Thanks for taking my questions I just wanted to start off at rail India. It looks like the investment volume there is pretty good.
Pretty stable.
At the start of ore at the end of last year, you mentioned you'd like to see that.
Railcar balance above 10000, I think by the end of 2024, but it looks it looks like you're all in good taste to surpass that maybe next quarter can you just talk about the market dynamics in India, what you're seeing obviously the utilization remains right at 100%, but just wondering can you talk about the dynamics there and what you expect for this year and next maybe.
And.
The dynamics remain very strong.
The Indian railway continues to.
Invest in its infrastructure.
Brendan Michael McCarthy: And just with the GDP growth in India, and the need for continued infrastructure development.
A lot of the products that will support that infrastructure development will move by rail.
Whether it's steel cement.
You think about any activity in India construction related.
They're going to need rail service and so what.
What really governs our ability right now to add cars to the fleet has the capacity to build.
Yes.
And if we could get our get access to more railcars, we would put more on lease.
We have to work with a number of different builders theyre doing a great job, but the demand is so high.
We don't have unfettered access to what we want.
We will certainly go over 10000 wagon Mark this year very good start to the year in the first quarter with deliveries were where they were at new.
New wagons and.
Speaker Change: Yes, we should we should hit that in the next quarter or two.
Got it and just kind of looking at the guidance that you gave last quarter.
It looks like you expect the rail international segment profit up 10% to $15 million.
That's still obviously that still remains the same despite.
The elevated.
Speaker Change: Your wagon additions.
That's correct.
Okay. Okay.
Okay.
Last question from me I just had a wondering if you could provide some insight on the Norfolk Southern complaints I saw that they had the $600 million settlement.
Speaker Change: Do you have any updates you can provide us with those complaints.
As you can understand a little mitigation of that nature, we really don't get into detail on that.
We continue to believe very strongly in the position we have.
The claims Norfolk Southern has made against Gtx are unfounded.
And we will defend ourselves accordingly.
Understood. Thanks for the insight that's all for me.
Thank you.
At this time there are no further questions I will turn the call back over to Shari hellerman for closing remarks.
I'd like to thank everyone for their participation on the call. This morning. Please contact me with any follow up questions. Thank you.
This includes the Gtx Corporation 2024 first quarter earnings Conference call. Thank you for joining you may now disconnect.
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