Q3 2024 Trinity Industries Inc Earnings Call
Speaker Change: Good day and welcome to the Trinity Industries 3rd Quarter, that did September 30, 2024 Results Conference Call.
Speaker Change: Art Participants will be in Listen Only Mode.
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Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad. To withdraw your question, please press star than two. Please note this event is being recorded.
Speaker Change: Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the private securities litigation reform act.
Speaker Change: of 1995.
Speaker Change: and Include Statements as to Estimates.
Speaker Change: Expectations, Intensions, and predictions of future financial performance. The statements that are not historical facts are forward-looking.
Speaker Change: Participants are directed to Trinity's Form 10K and other SEC filings for a description of certain of the business issues and risks.
Speaker Change: A change in any of which could cause actual results or outcomes to different materialies from those expressed in the Ford-looking statements.
Speaker Change: I would now like to turn the conference over to Lee-Anne Mann, Vice President and Professor Relations. Please go ahead.
Lee-Anne Mann: Thank you, operator. Good morning everyone. We appreciate you joining us for the company's third quarter, 2024, financial result conference call.
Lee-Anne Mann: Our prepared remarks will include comments from Dean Savage, Trinity's Chief Executive Officer and President in Eric Marchetto, the company's Chief Financial Officer.
Lee-Anne Mann: We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-gap financial metrics. The reconciliation of the non-gap metrics to comparable gap measures are provided in the appendix of the quarterly investor slides.
Lee-Anne Mann: which you're accessible on our Investor Relations website at www.trin.net. These slides are under the events and presentations portion of the website, along with the third-quarter earnings conference call event link.
Lee-Anne Mann: A replay of today's call will be available after 10 30 AM Eastern Time, through the night on November 7, 2024. Replay information is available under the events and presentations page on our Investor Relations website.
Speaker Change: It is now my pleasure to turn the call over to Jean.
Jean: Thank you Leigh Mann, a good morning everyone. Trendy third quarter results. Once again, demonstrate strong performance across our business.
Speaker Change: are poorly adjusted EPS, a 43 cents, represents a 17 cent increase year over year. An operating profit has risen by 22 percent compared to the previous year.
Speaker Change: These impressive results are driven by steady progress and consistent performance throughout 2024, which we expect to continue in the fourth quarter.
Speaker Change: Comstacquitly, we are raising and tightening our full year ETS guidance to arrange of a dollar 70 to a dollar rating.
Speaker Change: Eric will provide more details on fourth quarter expectations and his prepared remarks.
Speaker Change: Before talking about Trinity segment results, I'd like to provide an overview of its current market conditions.
Speaker Change: We're just two months remaining in the year. We are confident in our forecast of roughly 40,000 industry deliveries in 2024.
Speaker Change: Carlos and Christ in the third order as compared to the third quarter of the previous year. Primarily driven by the agriculture and chemical and markets.
Speaker Change: We expect a large coin and so eating prop harvest which is also contributing to this car low growth.
Speaker Change: Great expansion and improvements in railroad service have been key themes in 2024.
Speaker Change: Rail Service continues to trend positively and as the railroad sustain this type of performance, is shooting church shippers to incorporate more rail shippers in their supply team management.
Speaker Change: and now let's face it to the performance of our business in the third quarter.
Speaker Change: TREDIES Business Consistent of two main segments, the Rear Parleasing and Services Group and the Real Products Group. I'll start my comments in the Leigh Cine and Services segments, which includes our Leigh Cine, Maintenance and Logistics Services Businesses.
Speaker Change: I'd like to note that we are particularly pleased with the benefits of a lining of these seen and made this businesses into the same segment.
Speaker Change: This move has resulted in better performance with lower cost.
Speaker Change: For the segment, revenues increased by approximately 11% compared to the previous year. To identify favorable pricing and a higher volume of external repairs, as well as improve lease rates and net additions to the lease fleet.
Speaker Change: Additionally, segment operating profit is 20% higher than a year ago.
Speaker Change: Segment operating margins include gains with 39.8% in the quarter, which aligns with their forecast to guide.
Speaker Change: With utilization remains favorable at 96.6% for the quarter. We have observed an improvement in utilization so far in the fourth quarter, and anticipate concluding the year with higher utilization rate.
Speaker Change: We completed $67 million of least poor colonial sales on the quarter. Resulting gains of $11 million.
Speaker Change: are quarterly net-free investments with $41 million and year-to-date we have invested $87 billion in our lease fleet.
Speaker Change: The Chiefs release rate differential for FOD was 28.4% for the quarter, marking 10 consecutive quarters of double digits positive FOD.
Speaker Change: During these six quarters, we have reprised 48% of our sleep. And the impact of the repricing is becoming more evident in our top line results.
Speaker Change: We expect this trend to continue as we are consistently repriced, senior fleet upwards to market rates, and the North American fleet remains in balance supporting these rates.
Speaker Change: The renewal success rate was 78% for the quarter. High-biting that railcard demand remained high and in-market economics are supportive of higher lease rates.
Speaker Change: As we continue to expand our service offerings, we are encouraged by the progress we're making.
Speaker Change: Our efforts are gaining traction with our customers and they recognize that value are services bringing to their operational efficiency.
Speaker Change: Moving to the Real Product segment, our third quarter operating margin of 8.1% reflects year-over-year improvement in labor and operational efficiencies and favorable rail permit.
Speaker Change: Revenue is in the segment, we're $603 million.
Speaker Change: This quarter, we observed a flagship for tank car deliveries, though production still continues to be significantly led by freight cars.
Speaker Change: Additionally, as we expected, we shifted more of our production in Torps League as compared to the second quarter.
Speaker Change: We anticipate these trends to continue in the fourth floor.
Speaker Change: We expect to finish the year with an operating margin in the high end of the forecasted range of 6-8% in the rail product segment.
Speaker Change: During the quarter, we successfully delivered 4,360 new rail cars and received 1,810 new rail orders, ending the quarter with a backlog of 2.4 billion dollars.
Speaker Change: In the third quarter, we saw several customers deferring their order decisions to the fourth quarter. As a result, we are experiencing strong order activity in the fourth quarter today. Additionally, customers are expanding their existing orders with tap on the orders.
Speaker Change: In conclusion, I'm pleased with our business performance at Quarter and throughout 2024.
Speaker Change: Our Leigh C Business continues to operate consistently and favorably, both are by a more efficient production operation, a robust maintenance network and a growing part and services business that supports our fleet of 134,000 owned and managed rail cars.
Speaker Change: I will now turn the Eric to discuss the financial statements and providing up date to our outlook for the remainder of the year.
Eric Marchetto: Thank you, Jean and good morning everyone.
Eric Marchetto: In the third quarter, our last 12 months, adjusted our week was 18.3%. Above our target range, introduce and our investor day in June.
Eric Marchetto: This reflects consistent operations driving strong net income, balanced with a disciplined approach to managing our balance sheet.
Eric Marchetto: I will begin my quarterly comments with the income state.
Eric Marchetto: In the four, we are revenues of $799 million.
Eric Marchetto: External deliveries were slightly lower both sequentially and year over year, but this was partially offset by favorable pricing and mix of maintenance work and prudely straights.
Eric Marchetto: Fleet Grove in a favorable mix of real-card deliveries.
Eric Marchetto: 4GAP EPS was 44% and adjusted EPS was 43 cents.
Eric Marchetto: We maintain a positive outlook on our balance sheet position. Our loan value ratio stands at 68% within our target range of 60 to 70%.
Eric Marchetto: Additionally, we've been at the Department of State's Office for a favorable average cost of debt with a debt next debt maturities scheduled for late 2025. This strategic position allows us to increase the spread of our cost of capital as we continue to re-pricet our lease assets.
Eric Marchetto: Moving to the Caslow statement, you're today caslow from continuing operations was $3.84 million and we currently have liquidity of $920 million.
Eric Marchetto: Church of Billy is generating significant cash flow is evident at our 2022 cash flow funds.
Eric Marchetto: You today, we have returned $77,000 through dividends paid and share repurchases, reflecting our commitment to returning capital to shareholders.
Eric Marchetto: We continue to believe that our best use of cast is the investment in an optimization of our lease fleet.
Eric Marchetto: for the first time in the year. We have added $340 million of new refurbills, second-day market additions, and modifications thoroughly sweep.
Eric Marchetto: Conversely, we have taken advantage of a strong secondary market to optimize our fleet and have sold 250-4 million dollars out of our fleet to improve its composition.
Eric Marchetto: This includes a 143 million dollar sale in the second quarter to an RIV partner. And those are our first to be under our management.
Eric Marchetto: We remain active as a buyer and seller in the sector market and we believe we have capitalized on a favorable market conditions to optimize our business returns.
Speaker Change: I will conclude my remarks for the expectations for the last quarter of the year. As Gene mentioned, we expect industry deliveries of approximately 40,000 railfares in 2024.
Speaker Change: Even my prior comments on net fleet investment, we are lowering our net fleet investment guidance by $1 million. For the range for the year, to arrange a $200 to $300 million.
Speaker Change: The second American has proven more attractive and initially expected and we're like strong returns from the second American sales.
Speaker Change: Consequently, we expected in the year with approximately $55 million in gains on least portfolio sales, up from our prior full year expectation of about $40 million.
Speaker Change: Some of these secondary markets sales come from our partially owned fleet, which will result in elimination of gains due to minority interest. We anticipate the impact to minority interest to be about full-man dollars over the third order of revenue.
Speaker Change: We continue to expect about 20 to 25% of our new rail curtain livers to go on our lease week for the full year, which implies higher eliminations in the fourth quarter.
Speaker Change: Our outlook for operating and administrative capital expenditures remains unchanged at 50 to 60 million dollars.
Speaker Change: Finally, with nine months of results now in, we're raising and tightening our EPS guidance.
Speaker Change: Winsus paid in in the year with EPS from Continuing Operations of a Dollar 70 to a Dollar 80.
Speaker Change: In February, we introduced our 2024 initial guidance of a dollar 30 to a dollar 50. We exceeded our starting expectations with the current midpoint of guidance being 35 cents higher than the initial project.
Speaker Change: This improvement is attributed to our rail products group operating margins.
Speaker Change: which is ramped well this year due to enhanced operational and labor efficiencies.
Speaker Change: A newer favorite mix of maintenance work, higher than expected gains on rubber sales.
Speaker Change: and a consistently performing, delicious business.
Speaker Change: In summary, we are pleased to have driven favorable outcomes across our lines of business and expect to conclude 2024 on a positive note. We look forward to updating you during our year-end call and February and provide guidance for 2025 at that time.
Speaker Change: Operator, we're now ready to take a first question.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.
Speaker Change: If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then too.
Speaker Change: Again, it is Star then one to ask you question.
Speaker Change: At this time we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Basca majors with Susquihana. Please go ahead.
Speaker Change: Thanks and good morning, come.
Basca majors: On the OEM margin guidance that you gave you talked about, I believe, in the year at the higher end of your range, was that specific to the fourth quarter? Was that suggesting your full year margin would be at, you know, close to 8% which would imply maybe above 8% in the fourth quarter?
Speaker Change: We're talking about tying to the range for the year so it'll be in that 6-8% and closer to the 8%.
Speaker Change: Okay, and...
Speaker Change: I mean that would put you
Speaker Change: in the fourth quarter of where you've sort of suggested the margin range for next year could fall out in that 7 to 9 percent from your investor day. Can we walk through, you know, how you've maybe...
Speaker Change: Lifted the margin faster than you thought you could earlier this year and shared it your investor day.
Speaker Change: Maybe what risks be at mix, production rates, other things that we can't see on the outside that...
Speaker Change: suggests that you know that could pull back a little bit before it continues to move forward to the range you set for 2021-26.
Speaker Change: Sure, so when you look at it, first the team has done a great job getting the labor efficiency and operating efficiency up. Some of the things they've done is we're done fixtures to help us with families of cars that go through a plant and lessons to set up time that have to occur during that.
Speaker Change: Other things is just we're getting the workforce, it's getting much more experience over a year. And so before we add a lot of younger employees, which tends to lead to lower efficiencies.
Speaker Change: So all of that plays into it in the mix of cars and how many setups.
Speaker Change: is going to do within a month or a month or a quarter. We'll also affect those.
Speaker Change: So you will very, very, you won't be a linear number that you're going to see, depending on the mixed, depending on the number of setups we're doing in that term or in that timeframe.
Speaker Change: And last question on the manufacturing side, but you did have another quarter of the low book to build orders, but you also said that there was some slippage into for queue.
Speaker Change: The order quarter, sorry, the orders this quarter are going to be much stronger. I mean, do you think?
Speaker Change: Well, they'd be strong enough to support a stable, to growing backlog from where you sit today, one month in the quarter.
Speaker Change: You know, what's the management strategy around managing production schedule if orders remain, you know, at a rate that doesn't necessarily support the current production rate for you guys in the industry. Thank you.
Speaker Change: Thanks, Beth. So, we still firmly believe in our 120,000 industry deliveries over the three-year time period that we introduced at the investor day.
Speaker Change: and when you look at that, we talked about having higher floors. And as we look at 250,000 cars left in the...
Speaker Change: Network that are over 40 years old. We're still looking at replacement demand driving, the demand for the new rail cars. The other thing I'm going to point out there is scrap the road to the third quarter, about 28,000 cars have been scrap.
Speaker Change: We're expecting just under 40,000 for the full year, which is very much in line with a new car production that we talked about for this year of 40,000.
Speaker Change: and I guess the last thing I'm going to say there...
Speaker Change: is Reckhart's in storage.
Speaker Change: has dropped and it's the normal seasonal rate. It's down the 19 percent right now and storage. So all those combining together still say that we have a tight market. It's supplied driven demand that we're seeing and we expect that to continue.
Speaker Change: To that point, the market structure and supply to man dynamics that you're discussing make it kind of sense. I'm curious.
Speaker Change: How do we reconcile that with your customers just being a bit skittish to the?
Speaker Change: to play a more significant amount of orders that support that replacement rate in recent quarters. I mean, when you talk to your customers,
Speaker Change: is there a common threat or theme as to why there's been a bit of a pause in the last few quarters and you see anything in their psychology or access to capital or view of the rail market or the economy that could unlock this in the next two to three quarters.
Speaker Change: Sure, and I'm going to start by saying you're probably here in a lot of companies talk about the selection, as cause many people do delay making some of the decisions in regards to capital. But we're having lots of really good conversations with customers.
Speaker Change: About what their needs are, we're seeing inquiry levels come in, but they are delaying those decisions somewhat so see what happens during the election.
Speaker Change: The other thing I'm going to say about this is we've got 45% of the industry backlock to the number of folks right now.
Speaker Change: and the fact that the supply chain has improved allows us to go back to more normal meantime for rail cars and place you know orders.
Speaker Change: You know during COVID it extended out and you had about a year to get a car once you ordered it. It's back down in about three to six months now. So you're going to see those dynamics change a little bit. And that's what I would just add this year.
Speaker Change: When we are seeing our customers do especially especially the industrial shippers, they're holding on to their rail cars. You know, as Jean mentioned in the Parade remarks.
Speaker Change: We had a 78% renewal success rate. Set views you, some idea that customers are confident they're going to need these rough bars and they're preparing for growth while they're not ordering...
Speaker Change: New Row Fords at the pace that would deliver in Row Fords. I think it's a significant chance of confidence and outlook going forward.
Speaker Change: and to that point...
Speaker Change: You came into the year on the leasing side, but maybe a more conservative view on how the secondary market would play out.
Speaker Change: You know clearly it's been...
Speaker Change: Procistently robust, I mean, you just raised the P&L gain as guidance in the cash in from...
Speaker Change: Rope Horstel's guidance. How do you feel about that?
Speaker Change: Continuing to have some durability here, I mean, are you seeing any change in the...
Speaker Change: Make-up or depth or interest of clients that look either from your core RIV partners or maybe more of a traditional putting books out and taking a number of other bids. In any picture of how the secondary market.
Speaker Change: looks today and your conviction and how long that can continue would be helpful. Thank you.
Eric Marchetto: Yes, sir. This is Eric again. I think part of that's just the beauty of our platform. We play in the rail margin in all aspects.
Eric Marchetto: Whether it's building new row for our leasing existing row for us and certainly in the second of second remark we've been very active. To your point, the breadth and depth of the market have been...
Eric Marchetto: Quite good.
Eric Marchetto: We're seeing a rough horse remain an attractive investment for both operating less horse.
Eric Marchetto: and for passive equity investors.
Eric Marchetto: and so we're seeing strong appetite, we're seeing that the market.
Eric Marchetto: still expects Leigh's race to continue to improve based on their assumptions and their underwriting assumptions.
Eric Marchetto: bidding on deals. So yeah, we've been very satisfied with the...
Eric Marchetto: with the secondary market.
Eric Marchetto: and getting to our fleet investment, that's one of the others why we lowered our fleet investment. We haven't been as successful.
Eric Marchetto: and Bine, Secretary of Market, Ralph Hars, even more successful in selling on that. Just to speak to the price and dynamics.
Eric Marchetto: Last one.
Eric Marchetto: M-F-L-R-D, measure, remain pretty steady, you know, that's consistent with.
Eric Marchetto: Some of the adjacent rematurics reported by your peers.
Speaker Change: I can't recall if you said this in prepare remarks but I think you're about halfway through repricing your your lease books and lease rates really took off. You have two and a half three years ago.
Speaker Change: Do you see anything on the horizon that changes that dynamic now? It seems like the drop-in steel prices hasn't really had an impact.
Speaker Change: You know, the drop in interest rates doesn't seem to be having an impact, although that's, you know, reversing a little bit here more recently. Any thoughts on the pricing power supply and then the dynamics that are really fueling.
Speaker Change: Your ability to drive greater returns from that least-free of existing assets. And, you know, as this another two and a half, three years to get to the rest of the book, that will be a rising time for Trinity and your peers.
Speaker Change: So you were right, we've reprised about 48% of our fleet in the last 10 quarters since AFLRD turned double digit positive. And so when we look at that, we're still seeing...
Speaker Change: Subquiet tool improvement in the Leigh Straits.
Speaker Change: If you look at third quarter versus second quarter, we went up 26.9% on the race. So it's still very strong dynamics. Why is that?
Speaker Change: It's a really balanced fleet, right? It's supplied driven. We have the number of cars getting scrapped or really in line with a number of cars being built. So it's keeping those dynamics in the market tight, which allows us to continue to have room to work and raise those least reach.
Speaker Change: So we're really happy for the position we're at with a leaflet and the rates and where we can see that going.
Speaker Change: Well, Gene Eric, Leigh Mann, thank you very much. Thank you, Beth.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Gene Savage, Chief Executive Officer and President for any closing remarks.
Gene Savage: Thank you and I'd like to extend my gratitude to the Trinity team for their hard work and driving these outstanding results for our business.
Gene Savage: I am encouraged by our performance and I look forward to speaking with you again in February, all we'll refer on our full year 2020 for a result and outline our plans and guidance for 2025.
Gene Savage: Thank you all for your continued support of Trinity.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.