Q1 2024 Trinity Industries Inc Earnings Call
Operator: Good day, and welcome to the Trinity Industries first quarter ended March 31st, 2024 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.
Good day and welcome to Trinity Industries' first quarter ended March 31st 2024 results Conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
Operator: Please note, this event is being recorded. Before we get started, let me remind you that today's conference call contains four forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and they include statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical fact are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leigh Ann Mann, Vice President of Investor Relations.
Please note this event is being recorded.
Before we get started let me remind you that todays conference call contains forward looking statements as defined by the private Securities Litigation Reform Act of 1995 and.
And includes statements as to estimates expectations intentions and predictions of future financial performance.
Statements that are not historical fact are forward looking.
Participants are directed to Trinity's Form 10-K, and other S E SEC filings for a description of certain of the business issues and risks.
Change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward looking statements.
Speaker Change: I would now like to turn the conference over to Leigh Anne men, Vice President of Investor Relations. Please go ahead.
Speaker Change: Yeah.
Leigh Anne Mann: Thank you, operator. Good morning, everyone.
Speaker Change: Thank you operator, good morning, everyone. We appreciate you joining us for the company's first quarter 'twenty 'twenty four financial results conference call.
Leigh Anne Mann: We appreciate you joining us for the company's first quarter 2024 financial results conference call. Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President, and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the supplemental slides, which are accessible on our Investor Relations website at www.trin.net.
Speaker Change: Paired remarks solar include comments from Jean Savage Trinity's, Chief Executive Officer.
Speaker Change: Eric <unk>, the company's Chief Financial Officer, we will hold a Q&A session. Following the prepared remarks from our leaders.
Speaker Change: During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in my prediction.
Speaker Change: Slide which are accessible on our Investor relations website at Www Dot trend dot net.
Speaker Change: Flights or under the events and presentations portion of our website along with the first quarter earnings Conference call.
Speaker Change: A replay of today's call will be available. After 10 30, a M. Eastern time through midnight on May eight 2020 for replay.
Speaker Change: Replay information is available under the events and presentations page on our Investor Relations website. It is now my pleasure to turn the call over to gene.
Leigh Anne Mann: These slides are under the events and presentations portion of the website, along with the first quarter earnings conference call of the company. A replay of today's call will be available after 10: 30 a.m. Eastern Time through midnight on May 8, 2024. Replay information is available under the events and presentations page on our investor relations website. It is now my pleasure to turn the call over to
Gene Savage: Thank you, Leigh Ann, and good morning, everyone. We started 2024 off strong, and I am pleased with Trinity's progress. Our first quarter revenue was up 26% year-over-year, and we carried more of that revenue to the bottom line. We continued to reprice more of our fleet upward and had a first quarter future lease rate differential, or FLRD, of 34.7%, the second highest mark for the FLRD since Trinity began reporting this metric four years ago.
Gene: Thank you Leann and good morning, everyone. We started 2024 are strong and I am pleased with Trinity's progress our first quarter revenue was up 26% year over year, and we carried more of that revenue to the bottom line.
Gene: We continued to reprice more of our fleet upward and I had a first quarter future lease rate differential or F. O. R. D of 34, 7% the second highest mark for the SLR D. Since Trinity began reporting this metric four years ago.
Gene: Furthermore, we achieved significant margin improvement in our rail products business.
Gene Savage: Furthermore, we achieved significant margin improvement in our rail products business. In summary, our first quarter gap EPS of 33 cents represents momentum starting to flow through our business and demonstrates the strength of our platform. This start to the year gives us confidence to raise our full-year EPS guidance to a range of $1.35 to $1.55, reflecting higher revenue, margin improvement, and consistent performance.
Gene: In summary, our first quarter GAAP EPS of <unk> 33 cents represents momentum starting to flow through our business and demonstrate the strength of our platform.
Gene: This start to the year gives us confidence to raise our full year EPS guidance to a range of $1 35 to $1 55, reflecting higher revenue margin improvement and consistent performance.
Gene Savage: Before we talk about our segments and financial results, I'd like to briefly update you on what we are seeing in the market. Service levels continue to improve in the industry, allowing shippers to be more efficient in their supply chain. Soil times are also improving, and well below historical averages, allowing quicker turnaround. We're optimistic that these service metrics will continue in the near term, making rail a more competitive mode of transport. Overall, fleet storage rates also remain low.
Speaker Change: Before we talk about our segments and financial results I'd like to briefly update you on what we're seeing in the market.
Speaker Change: Service levels continue to improve in the industry, allowing shippers to be more efficient in their supply chain.
Speaker Change: So all times are also improving and well below historical averages, allowing quicker turnaround.
Speaker Change: We're optimistic that these service metrics will continue in the near term, making rail are more competitive mode of transport.
Overall fleet storage rates also remain low.
Gene Savage: In terms of end markets, since last quarter, we have seen significant improvement in chemicals. Additionally, despite high levels of inflation and high borrowing costs, automotive demand has remained strong, driven by continued demand for SUVs and the recovery in the auto parts supply chain following the supply chain challenges of the past few years. We continue to view this cycle differently with diversified railcar demand. This is encouraging to Trinity as a lessor, as stabilized production levels support a balanced lease fleet, allowing for high utilization and competitive lease rates.
In terms of end markets since last quarter, we have seen significant improvements in chemical.
Speaker Change: Additionally, despite high levels of inflation and high borrowing costs automotive demand has remained strong driven by continued demand for Suvs and the recovery in auto parts supply chain. Following the supply chain challenges of the past few years.
Speaker Change: We continue to view this cycle differently with a more diversified railcar demand.
This is encouraging to Trinity has a lessor of stabilized production levels support our balance loosely allowing for high utilization and competitive lease rates.
Gene Savage: And now, let's talk about our performance at the segment level. As mentioned on our year-end call, effective January 1st, we modified our organizational structure to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services and parts business. Today's results are presented in this new format.
Speaker Change: And now let's talk about our performance at the segment level.
Speaker Change: As mentioned on our year end call effective January 1st we modified our organizational structure to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services and parts businesses.
Speaker Change: Today's results are presented in this new format.
Gene Savage: As part of this modification, we aligned our maintenance services business, which was previously part of our rail product segment, to now be presented within our leasing and services segment. The leasing and services segment, which includes leasing and management, maintenance services, and digital and logistics services, had a strong quarter with fleet utilization of 97.5 percent. Renewal rates are up 30% over expiring rates and, as I said at the top of the call, an FLRD of a positive 34.7%. However, lease rates are substantially higher across nearly all railcar types.
Speaker Change: As part of this modification, we aligned our maintenance services business, which was previously part of our rail products segment to now be presented within our leasing and services segment.
Speaker Change: The leasing and services segment, which includes leasing and management maintenance services and digital one logistics services had a strong quarter with fleet utilization of 97, 5%.
Speaker Change: Renewal rates up 30% over expiring rates and as I said at the top of the call and that's all our D of a positive 34, 7%.
Speaker Change: Lease rates are substantially higher across nearly all railcar types are.
Gene Savage: Our revenue and margin, excluding these portfolio sales, are up year over year in this segment, driven by higher external maintenance work, improved lease rates, and net additions to the lease fleet. Revenue from maintenance services is up 122% year over year. Digital and Logistics Services revenue is up 25% year-over-year, helped by the acquisition of RSI and continued growth in these businesses in support of our lease fleet. Giving you a few more details about this business, our average lease rates are up $49 compared to a year ago, and we have now repriced about 41% of our fleet in the last two years, representing when the FRD turned double-digit positive.
Speaker Change: Our revenue and margin excluding these portfolio sales are up year over year in this segment.
Speaker Change: Driven by higher external maintenance work improved lease rates and net additions to the lease fleet.
Speaker Change: Revenue for maintenance services is up 122% year over year.
Speaker Change: Digital and logistics services revenue is up 25% year over year benefited by the acquisition of Rsi and continued growth in these businesses in support of our lease fleet.
Giving you a few more details about this business our average lease rates are up $49 compared to a year ago, and we have now repriced about 41% of our fleet in the last two years, representing when the MLR D turn double digit positive.
Gene Savage: While our renewal success rate of 65% was lower than usual in the quarter, this was specific to certain end markets and, in some cases, a strategic decision. Put another way, the current supply-driven strength enables us as a lessor to make the optimal lease decision for long-term returns on the asset.
Speaker Change: While our renewal success rate of 65% was lower than usual in the quarter. This was specific to certain end markets and in some cases a strategic decision.
Speaker Change: Put another way the current supply driven strength enables us as a lessor to make the optimal lease decisions for long term returns on the asset.
Gene Savage: We expect our utilization to remain consistent as we continue to renew railcars and assign non-renewable railcars into other services, often at a better return. Our first quarter net investment in our lease fleet was $123 million, which included new railcar additions, betterments, and secondary market purchases of $148 million and $24 million in proceeds from lease portfolio sales. Moving to our rail product segment, which includes our manufacturing business and parts and components businesses, we continue to see significant improvement in the operating margin.
We expect our utilization to remain consistent as we continue to renew railcars and assign non renewing railcars into other services often at better return.
Speaker Change: Our first quarter net investment in our lease fleet was $123 million, which includes new railcar additions betterment and secondary market purchases of $148 million and $24 million in proceeds from lease portfolio sale.
Speaker Change: Moving to our rail products segment, which includes our manufacturing business and parts and components businesses. We continue to see significant improvement in the operating margin.
Gene Savage: Higher revenue in the quarter reflects higher deliveries, and our operating margin of 6.6% highlights the improvements we've made in our operational and labor efficiency. We are seeing improvement in rail service and supply chain, and our team is doing a great job mitigating issues. Our first quarter performance reflects that dedication.
Speaker Change: Higher revenue in the quarter reflects higher deliveries and our operating margin of six 6%.
Speaker Change: Highlights the improvements we've made in our operational and labor efficiencies.
Speaker Change: We are seeing improvement in rail service and supply chain and our team is doing a great job mitigating issues.
Our first quarter performance reflects that dedication.
Gene Savage: Trinity's first quarter order volume of 1,880 railcars continues to support our views on replacement-driven demand, and we still expect the industry to deliver about 40,000 railcars in 2024. We have seen an encouraging uptick in order inquiries to further support our view of replacement level demand. Our railcar deliveries were 4,695 and included virtually all of the railcars that were impacted by the border closure at the end of last year. We also completed 675 rail car conversions in the quarter. Our new rail car backlog remains healthy at $2.9 billion.
Speaker Change: Trinity's first quarter order volume of 1880 railcars continues to support our views on replacement driven demand.
Speaker Change: And we still expect the industry to deliver about 40000 railcars in 2024.
Okay.
Speaker Change: We have seen an encouraging uptick in order inquiries to further support our view of replacement level demand.
Speaker Change: Our railcar deliveries were 4695 and included virtually all of the railcars that were impacted by the border closure at the end of last year.
We also completed 675 railcar conversions in the quarter.
Speaker Change: Our new railcar backlog remains healthy at $2 $9 billion.
Gene Savage: Before I turn the call over to Eric, I want to remind you of two important dates. First, our annual shareholder meeting will take place on Monday, May 20th at 8.30 a.m. Central Time. Second, make sure your calendars are marked for June 25th. We look forward to hosting you in Texas at our 2024 Investor Day and providing a longer-term view of our business. Reach out to Leigh Ann if you have any questions about the event. I'll now turn to Eric to discuss the financial statements and update our views on the rest of the year.
Speaker Change: Before I turn the call to Eric I want to remind you of two important dates.
Speaker Change: First our annual shareholder meeting will take place Monday may 20th at 830, a M central time.
Speaker Change: Second make sure your calendars remark for June 25th we look forward to hosting you in Texas at our 'twenty 'twenty, four investor day, and providing a longer term view of our business.
Speaker Change: Reach out to me and if you have any questions about the event.
Speaker Change: I'll now turn to Eric to discuss the financial statements and update our views on the rest of the year.
Eric R. Marchetto: Thank you, Gene, and good morning, everyone. I'll start my comments on the income statement. Total revenues of $810 million, up 26% as compared to a year ago, reflect higher external railcar deliveries, improved lease rates, and a higher volume of external repairs. Lease portfolio sales were modest in the quarter, and we recorded a gain of $2.1 million.
Eric: Thank you, Jamie and good morning, everyone.
I'll start with comments on the income statement.
Eric: Total revenues of $810 million up 26% as compared to year ago.
Eric: Put higher external railcar deliveries improved lease rates and a higher volume of external repairs.
Lease portfolio sales were modest in the quarter.
Eric: We reported a gain of $2 $1 million.
Eric R. Marchetto: Both quarterly gap and adjusted EPS were $0.33 in the quarter, with adjusted EPS reflecting a $0.26 improvement from a year ago. First quarter favorable segment margin performance was driven by strong lease rates with higher external deliveries and improved efficiency in rail manufacturing. We are seeing the benefits of our platform and are excited by the progress. Moving to the cash flow statement, our cash flow from continuing operations was $57 million, and our adjusted pre-cash flow after investments and dividends was $12 million. Cash from operations was impacted by higher receivables balances.
Eric: Both quarterly GAAP and adjusted EPS were <unk> 33 in the quarter with.
Eric: With adjusted EPS, reflecting a 26% improvement from a year ago.
Eric: First quarter favorable segment margin performance was driven by strong lease rates with higher external deliveries and improved efficiency around manufactured.
Eric: We are seeing the benefits of our platform and are excited by the progress.
Eric: Moving to the cash flow statement, our cash flow from continuing operations was $57 million.
Eric: Our adjusted free cash flow after investments and dividends.
Eric: $12 million.
Eric: Cash from operations was impacted by higher receivables balances.
Eric R. Marchetto: Partially offset by lower inventory balances as we delivered railcars that were placed in storage in the fourth quarter. We returned $23 million to our shareholders in the quarter through our quarterly dividend payment. Net fleet investment in the quarter was $123 million.
Eric: Partially offset by lower inventory balances as we delivered railcars that were placed in storage in the fourth quarter.
Eric: We returned $23 million for our shareholders in the quarter through our quarterly dividend payment.
Eric: Net fleet investment in the quarter was $123 million.
Eric R. Marchetto: Our last 12 months' pre-tax ROE was 16.2 percent, representing the mid-team goal we set at our 2020 Invest Today. In March, we entered into a new warehouse loan facility with a total commitment amount of $800 million. This replaces the prior $1 billion warehouse loan facility.
Eric: Our last 12 months pre tax ROE was 16, 2% representing a mid teen goal, we set at our 2020 Investor day.
Eric: In March we entered into a new warehouse loan facility with a total commitment amount of $800 million.
Eric: This replaces the prior $1 billion warehouse loan facility.
Eric R. Marchetto: We right-sized the warehouse facility, given our plain investment expectations. There is more information on our new warehouse in the 10Q, which we expect to file later today. As we look forward in 2024, we are confident we'll deliver strong results. Given a great start to the year and our confidence in the durability of these improved margins, we are raising our full-year EPS guidance by 5 cents to a range of $1.35 to $1.55.
Eric: We right sized the warehouse facility, given our fleet investment expectations.
Eric: There's more information on our new warehouse in the 10-Q, which we expect to file later today.
Eric: As we look forward in 2024, we are confident we will deliver strong results.
<unk> had a great start to the year and our confidence in the durability of these improved margins, we are raising our full year EPS guidance by five to.
Eric: To a range of $1 35 to $1 55.
Eric R. Marchetto: We believe this target is attainable and see a lot of momentum in our business to support our elevated guide. We expect a full year rail products group operating margin of six to eight percent. We're pleased to start the year in this range and expect to continue to improve as the year progresses. We anticipate a full-year net investment in our lease fleet of between $300 and $400 million and expect secondary market real activity in the second quarter.
Eric: We believe this target is attainable and see a lot of momentum in our business to support our elevated guidance.
Eric: We expect full year rail products group operating margin of six 8%.
Eric: We're pleased to start the year in this range, we expect to continue to improve as the year progresses.
Eric: We anticipate a full year net investment in our lease fleet of between 300 and $400 million and expect secondary market railcar activity in the second quarter.
Eric R. Marchetto: As Gene said, we like the progress we are making as a company and the fundamentals of the operating environment. We continue to believe our leasing business will benefit from the products and services supporting it. We look forward to discussing our long-term views with you at our Investor Day here in Dallas on June 25th. Operator, we are now ready to take our first question.
Eric: As gene said, we like the progress, we're making as a company and the fundamentals of the operating environment.
Eric: We continue to believe our leasing business will benefit from the products and services supporting it.
Eric: We look forward to discuss our long term views with you at our Investor day here in Dallas on June 22.
Speaker Change: Operator, we're now ready to take our first question.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Justin Long with Stevens. Please go ahead.
Speaker Change: We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: The first question comes from Justin Long with Stephens. Please go ahead.
Justin Trennon Long: Thanks and good morning. So maybe to start with a couple questions on the numbers going forward, Eric. I think you talked last quarter about the impact of rail Car sales being maybe around half of what it was in 2023. As you think about the full year, any change to that forecast and, you know, on rail Products, our rail Product Group margins, the guidance didn't change.
Speaker Change: Yeah.
Justin Trennon Long: Thanks, and good morning.
Justin Trennon Long: Good morning, So maybe to start with a couple questions on the numbers going forward.
Justin Trennon Long: Eric I think you talked last quarter about the impact from railcar sales maybe being around half of what it was in 2023 as you think about the full year any change to that forecast and on rail products.
Justin Trennon Long: Rail product group margins the guidance didn't change, but any color you can provide on that cadence of margins as we think about the next few quarters.
Eric R. Marchetto: Yeah, I'll start, and Gene can talk about the rail group. Justin, thanks for your question. At a high level and a short answer, no, we really haven't changed anything, as you saw in the first quarter, car sales activity was very modest, just a two million dollar gain, and that really, our guidance of half the games from 2023 and 2024 still holds. We do expect that our activity will pick up in the second quarter, and we do expect activity to be kind of throughout the year.
Eric: Yeah, I'll start and Jim can talk about the rail group.
Eric: Justin Thanks for your question.
Jim: At a high level on a short answer no. We really havent changed I think as you saw in the first quarter <unk> sales activity was very modest.
Speaker Change: About $2 billion.
Speaker Change: David.
And that really our guidance of half the games from 2023 and 2024 still holds we do expect that.
Speaker Change: Our activity will pick up in the second quarter.
Speaker Change: We do expect activity to be kind of throughout the year.
Gene Savage: And as far as real products go, you know the hard work that the team has been doing over the last several quarters is finally starting to show. When you look at that, our supply chain has gone out and captured more value for us, and when you look at the efficiencies, they've come quicker with longer tenured employees than what we had expected there, and we expect these to continue throughout the year, but you know we don't give quarterly guidance on that, so we're keeping the range of 16%, and that range is for the entire year.
Speaker Change: And as far as rail products, you know the hard work that the team has been doing over the last several quarters finally, starting to show when you look at that our supply chain has gone out and captured more of the value for us and when you look at the efficiencies have come quicker with a longer tenured employees than what we had expected there and we.
These to continue throughout the year, but you know we don't give quarterly guidance on that so we're keeping the range of 6% to 8% and that range is for the entire year.
Justin Trennon Long: Okay, fair enough. And it was encouraging to see that improvement in margins. I guess on the other side of the coin, just based on the commentary on inquiry levels that you provided last quarter, it sounded like we were starting to see a pickup when you reported in late February; orders got a little bit better sequentially, but you didn't see as much of an improvement as, you know, I anticipated. So I'm just curious if there's anything going on as it relates to just converting inquiries to orders and Can we get back to an environment where the backlog is improving sequentially?
Speaker Change: Okay fair enough and it was encouraging to see that improvement in margins.
Speaker Change: I guess on the other side of the coin just based on.
Speaker Change: The commentary on inquiry levels that you provided last quarter. It sounded like we were starting to see a pick up when you reported in late February orders got a little bit better sequentially, but you didnt see as much of an improvement as I anticipated. So I'm just curious if there is.
Speaker Change: Anything going on as it relates to just converting inquiries to orders and how youre thinking about order flow in the quarters ahead can we get back to an environment, where the backlog is improving sequentially.
Gene Savage: So remember, Justin, that we had in the third quarter of 2022 a very large multi-year order. So when you have those big orders come in, sometimes quarter to quarter following that, you don't see quite as large a number happening. We still have just under half the industry's backlog sitting on our books. And when you look at the inquiry levels, they continue to improve, even this quarter. And if you look at the orders we received in the quarter, we're still within our normal range. So it's still that replacement level demand that we keep talking about that we see those orders coming in. And I think the industry backlog supports this.
Speaker Change: So remember just said that we had in the third quarter of 2022 are very large multi year order. So when you have those big orders come in sometimes quarter to quarter. Following that you don't see quite as large a number happening we still have just under half the industry backlog sitting on our books.
Speaker Change: And when you look at the inquiry levels continue to improve even this quarter and if you look at the orders we received in the quarter were still within our normal range. So it's still at that replacement level demand that we keep talking about that we see those orders coming in and I think the industry backlog supports that.
Justin Trennon Long: Okay, I got it. Thank you for the time.
Speaker Change: Okay got it thank you for the time.
Thank you.
Bascome Majors: The next question comes from Bascom Majors with Susquehanna. Please go ahead.
Basketball Majors: The next question comes from basketball majors with Susquehanna. Please go ahead.
Bascome Majors: Thanks for taking my questions. And to follow up on Justin's last question, can you talk a little bit about where you're seeing improved inquiry levels and if you've seen a greater conversion of that, because I do understand and appreciate the backlog. With the last six months for the industry being at roughly half the replacement rate and orders, it does give us a little bit of pause on whether this production pace can sustain into 2025. Thank you.
Basketball Majors: Yeah.
Basketball Majors: Thanks for taking my questions and to follow up on Justin's last question could you talk a little bit about where you're seeing improved inquiry levels and and and if you've seen a greater conversion of that because I do understand and appreciate the backlog but.
Basketball Majors: The last six months for the industry being at roughly half replacement rate in orders. It does give us a little bit of pause on on you know whether this production pace can sustain into 2025. Thank you.
Gene Savage: Sure, and thanks for the question, Bascome. If you look at it, one thing that is very encouraging to us is that we're starting to see tank car orders creep up. And that goes along with the chemicals and the alternative fuels markets. And in the second half of the year, we see those coming into play more.
Speaker Change: Sure and thanks for the question Baskin, if you look at it one thing that is very encouraging to US is we're starting to see a tank car orders creep up and that goes along with the chemicals and the alternative.
Speaker Change: Fuels market in the second half of the year, we see those coming into play more as you know this started out as a freight car led recovery.
Gene Savage: As you know, this started out as a freight car-led recovery. So that's great from the standpoint that, typically, tank cars have higher margins than freight cars. The other thing that I'm going to say about this is that in the first quarter, there were 9,000 cars scrapped. If you say we have the same number for the rest of the year, that's 36,000 cars that would be scrapped. Over the last five years, especially years 20 and 21, there have been over 50,000 cars scrapped.
Speaker Change: No that's great from the standpoint of typically tank cars have higher margins than freight cars. The other thing that I'm going to say on that says first quarter. There were 9000 car scrap.
You say, we have the same number for the rest of the year, that's 36000 cars that would be scrap.
Gene Savage: So there's still a lot of room to make up for the numbers of cars scrapped versus built over the last four or five years. And inquiry levels that we're seeing still support that replacement level demand for us and for others.
Speaker Change: Over the last five years, especially 2020. One there are over 50000 car scrap so theres still a lot of room to make up for the numbers of car scrap versus build over the last four or five years and our inquiry levels that we're seeing still support that.
Speaker Change: Replacement level demand for all of them for others.
Bascome Majors: And on the production plan, can you talk a little bit about, you know, how you feel about it? Thank you.
Speaker Change: And on the production plan can you talk a little bit about you know how you feel about.
Speaker Change: The cadence and your productivity and and and and whether it should be fairly steady throughout the next couple of quarters based on the visibility you have today or if there'll be some ups and downs. Thank you.
Gene Savage: Okay, thanks Bascome. You know, it's never always linear, so I'm going to start with that, but based on the fact that our turnover has reduced, so the tenure of our employees continues to go up, and with that tenure, we see efficiency improvements. We expect that to persist throughout the year. We are filling out some orders at the end of the year, but overall, we're very confident in our ability to continue to improve our overall performance.
Speaker Change: Okay. Thanks, I'll ask them you know, it's never always linear so I'm going to start with that but based off the fact that our turnover has reduced so the tenure of our employees continues to go up with that tenure, we see efficiency improvement.
Speaker Change: We expect that to persist throughout the year.
Speaker Change: We are filling out some orders at the end of the year, but overall, we're very confident in our ability to continue to improve our overall performance.
Bascome Majors: And lastly, I know it's already come up, but I'd love to drill in a little bit more on the gains on sale piece. I mean, that was a meaningful headwind to the Full Year Profit Outlook when you rolled that out in February, and it sounds like you're sticking with that. Can you just talk a little bit about maybe qualitatively rather than quantitatively and what you're seeing in the secondary markets? It does feel like that's still quite healthy, anything about the depth of deals when you put things out there in the marketplace, your conviction that you will be able to extend or find a new primary partner and sort of, you know, if there's any strategy change to how you've done that over the last four or five years Thank you. Sure, Bascom. Yeah, first, I'm just going to say I'm a big believer in the idea of, you know,
Speaker Change: And lastly, you know I know, it's already come up but I'd love to drill in a little bit more on the gains on sale piece I mean that was a meaningful headwind.
For the full year profit outlook, when you rolled that out in February and it sounds like you're sticking with that can you just talk a little bit about maybe qualitatively rather than quantitatively and what youre seeing in the secondary markets. It does feel like that still.
Speaker Change: Quite healthy just anything about the depth.
Speaker Change: Of deals when you put things out there in the marketplace.
Speaker Change: Our conviction that that you will be able to extend or find a new primary partner and sort of you know if theres any strategy change to how you've done that over the last four or five years as you look to the next two or three thank you sure bathroom.
Eric R. Marchetto: Yeah, first, I'll just reiterate, you know, when you look at our increase in guidance, that was all because of the operating margins in the business. We did not change any outlook on gains from sales.
Speaker Change: First I'll just reiterate.
Speaker Change: You look at our increase in guidance that was all.
Speaker Change: Because of the operating margins in the business, we did not change any outlook on gains on sale. So that's just an improvement in our outlook overall, our assumptions on on the car sales side and the games are still holding up.
Eric R. Marchetto: So, that's just an improvement in our outlook overall. Our assumptions on the car sales side and the gains are still holding up. And why it's different, there are a few reasons why it's different.
Speaker Change: Why it's different and there's a few things where it's a different.
Eric R. Marchetto: One, you know, we're originating a little bit less than we have historically. About 25% of our deliveries, of our manufactured deliveries, are going to go to the lease fleet. That's a little bit less. If you recall, on the last call, I referenced.
Speaker Change: One we're originating a little bit less than we have historically.
Speaker Change: We're about 25% of our deliveries.
Speaker Change: Of our manufactured deliveries or to go to lease fleet, that's a little bit less and as you recall on the last call.
Speaker Change: I referenced that a lot of our planned lease fleet additions were in the back half of the year in the fourth quarter of the year. So in terms of assuming that we're going to transact.
Eric R. Marchetto: But a lot of our planned lease fleet additions were in the back half of the year, in the fourth quarter of the year. So, in terms of assuming that we're going to transact those additions, it's not a good assumption. So, that's why we're holding it there. When you look at just the overall... When you look at the overall secondary market, we're encouraged. We see breadth and depth.
Speaker Change: <unk> additions.
Speaker Change: It just is not a good assumption. So we are that's why we're holding it there when you look at just the overall.
Speaker Change: Yeah.
Speaker Change: When you look at the overall secondary market.
Speaker Change: We're encouraged we see breadth and depth.
Speaker Change: We're seeing.
Eric R. Marchetto: We're seeing lessors, independent lessors. A lot of their fleet growth is coming from secondary market ads. We're not seeing a lot of speculative ads in the backlog. They're shifting more and buying secondary market transactions, so that's probably a healthier indication for the market. That may have a small impact on backlogs and order activity that we're seeing on the new car side, but overall, I think that's a good thing as they're looking to buy known deals rather than speculate.
Speaker Change: We're seeing lessors independent lessors, a lot of their fleet growth is coming from secondary market ads, we're not seeing a lot of speculative ads into the backlog, they're shifting more and buying secondary market transactions.
Speaker Change: It's probably a healthier indication for the market that may have a small impact on backlogs and order activity that we're seeing on the new car side, but overall I think thats a good thing.
Speaker Change: Theyre looking to buy.
Speaker Change: No deals rather than speculate when you look at.
Eric R. Marchetto: When you look at the other thing that's driving us is the lease originations that we're doing, we like the yield on those assets. We continue to raise our hurdle rates in the face of changes in interest rates, but we like the yield. The three to four million dollars of net fleet additions this year, we feel good about that from a return standpoint.
The other thing Thats driving us is the lease originations, we're doing we like the yield on those assets and we continue to raise our hurdle rates are in the face of changes in interest rates, but we like the yield and so you know the $3 million to $400 million of net fleet additions. This year, we feel good about that from a return stand.
Speaker Change: Point.
Bascome Majors: Thank you for your time. Yep.
Speaker Change: Thank you for the time thank you.
Operator: As a reminder, if you have a question, please press star then 1 to be added to the question queue. The next question comes from Steve Barger with KeyBank Capital Markets. Please go ahead.
As a reminder, if you have a question. Please press star then one to be joined into the question queue.
Speaker Change: The next question comes from Steve Barger with Keybanc capital markets. Please go ahead.
Steve Barger: Thanks, Good morning.
Steve Barger: Good morning.
Steve Barger: Not to dwell on the past two quarters; I know it can be lumpy, but the industry did average $5,000 per quarter, so I'm just curious about contingency plans. If this was the run rate that we were to see in the back half or for the next year, would you focus on price discipline and returns, even if that meant lower share? Or do you optimize for share to keep lines as utilized as you can in 2025?
Steve Barger: Not to dwell on the past few quarters I know it can be lumpy, but the industry did average 5000 per quarter. So I'm just curious about contingency plans. If this is the run rate that we were to see you know in the back half or for the next year would you focus on price discipline and returns even if that meant lower share or do you all.
Optimized for sure to keep lines as utilized as you can in 2025.
Gene Savage: So we have switched to a discipline model on the orders that we're taking. I don't see that changing. We continue to look at orders and say we've got to make a profit on those, and so as we move forward, I would expect that to stay. And if you look at the last few quarters, we've been in our normal range of orders, based on the industry, the 30 to 40%, even with that discipline. So we don't plan to change that.
Steve Barger: So we have switched to a disciplined model on the orders that we're taking I don't see that changing we continue to look at the orders and say we've got to make a profit on those and so as we move forward I would expect that to stay and if you look at the last few quarters, we've been in our normal range.
Steve Barger: Orders.
Steve Barger: For it based off the industry that 30% to 40%.
Steve Barger: Even with that discipline. So we don't plan to change that but remember we're talking about approximately 40000 cars for the industry.
Steve Barger: But remember, we're talking about approximately 40,000 cars for the industry. And this cycle is much more muted than any cycle that you've seen in the past. So you have lower highs and higher floors going into the cycle, and a very tight band. So it's not causing a lot of disruption overall in manufacturing.
Steve Barger: And this cycle is much more muted than any cycle that you've seen in the past.
Steve Barger: So you have lower high and higher floors going into the cycle and very tight band. So it's not causing a lot of disruption overall in manufacturing.
Steve Barger: understood. Yep, thanks.
Speaker Change: Understood. Thanks, and slide eight says LTV is about 66% you have the $369 million of unencumbered cars is that the LTV you expect to maintain at end of year and given the net fleet investment for the rest of the year will those cars be encumbered.
Steve Barger: And slide 8 says LTV is about 66%. You have $369 million of unencumbered cars. Is that the LTV you expect to maintain at the end of the year? And given the net fleet investment for the rest of the year, will those cars be encumbered this year? Or how do you think about, you know, utilizing that lever?
Speaker Change: This year or how do you think about utilizing that lever.
Eric R. Marchetto: Good question, Steve. And the tick-up in LTV this quarter was, I mentioned in my prepared remarks that we redid our warehouse. We ended up improving our advanced rate on those assets, and so that's why it ticked up this quarter. So that was good.
Speaker Change: Good question, Steve and the team.
Speaker Change: <unk> and <unk>.
Speaker Change: LTV this quarter was.
Speaker Change: Mentioned in my prepared remarks that we redid our warehouse.
Speaker Change: We ended up.
Speaker Change: Improving our advanced rate on those assets and so that's why it ticked up this quarter so that was good.
Steve Barger: We like having a little bit of unencumbered. I've not really managed the unencumbered as much as managing the overall leverage. Our long-term target is still at 60 to 65%. We do have our investor day coming up in June. We'll revisit that and give longer-term views. But, you know, for right now, I would hold to that 60 to 65%, but it went up because of the warehouse refinancing. Yep, I got it.
Speaker Change: We like having a little bit unencumbered.
Speaker Change: Really manage the unencumbered as much as managing the overall leverage our long term target is still at 60% to 65%.
Speaker Change: You have our Investor day coming up in June, we'll revisit that and give longer term views, but for right now I would I would hold to that 6% to 65%, but it went up because of the warehouse refinancings.
Speaker Change: Yeah got it thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jean Savage for any closing remarks.
Steve Barger: Yep, I got it. Thank you.
Gene Savage: This concludes our question and answer session. I would like to turn the conference back over to Gene Savage for any closing remarks. Well, thank you for joining us.
Well, thank you for joining us today as you hopefully heard our voices. We're excited about 2024 and believe Trinity is off to a great start to reach our targets and to continue to improve we look forward to sharing our progress with you and hope to see a lot of you on June 22.
Gene Savage: Well, thank you for joining us today. As you hopefully heard in our voices, we're excited about 2024 and believe Trinity is off to a great start to reach our targets and to continue to improve. We look forward to sharing our progress with you and hope to see a lot of you on June 25th. The conference is now concluded.
Speaker Change: Okay.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Operator: BF-WATCH TV 2021