Q4 2024 The Greenbrier Co Inc Earnings Call
Hello, and welcome to the Greenbrier companies fourth quarter and fiscal 2024 earnings Conference call. Following today's presentation, we will conduct a question and answer session.
Each analyst should limit themselves to one question.
What's a follow up if needed.
Until that time, all lines will be in a listen only mode.
At the request of the Greenbrier companies. The conference call is being recorded for instant replay purposes.
Speaker Change: At this time I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts you may begin.
Speaker Change: Thank you Chuck.
Justin Roberts: Good afternoon, everyone and welcome to our conference call today.
Justin Roberts: I'm joined by Lori to Korea's Greenbrier, as CEO, and President, Brian Comstock Executive Vice President and President of the Americas, and Michael Dawn Farrell Senior Vice President and CFO.
Justin Roberts: Following our update on Greenbrier is 'twenty 'twenty four performance and our outlook for fiscal 'twenty five we will open up the call for questions. Our earnings release and supplemental slide presentation can be found on the IR section of our website.
Justin Roberts: Matters discussed on today's conference call includes forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Justin Roberts: Our discussion today, we will describe some of the important factors that could cause greenbrier as actual results and 2025 and beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier.
Throughout the call today, you were here, it's referring to recurring revenue.
Justin Roberts: We define that as leasing and management services revenue, excluding the impact of syndication activity.
Speaker Change: With that I'll hand, the call over to Laurie.
Laurie: Thank you Justin and good afternoon, everyone Greenbrier.
Laurie: Greenbrier positive momentum in 2024 expanded during her fourth quarter, we're advancing our multi year better together strategy focused on three key areas.
Laurie: Our manufacturing leadership position in all our geographies.
Laurie: Proving our manufacturing gross margin and doubling recurring revenue our leasing business.
Laurie: I'm pleased with the results and achievements since we launched this three part strategy just two years ago.
Laurie: In Q4, Greenbrier generated our second highest quarterly EBITDA of $159 million and aggregate gross margin expanded to 18, 2%.
Laurie: This is 310 basis points of sequential margin growth.
Laurie: Oh your aggregate gross margin of 15, 8% is 460 basis points higher than fiscal 2023.
Laurie: Q4 was our fourth consecutive quarter and gross margin in the mid teens or higher driven by strong manufacturing and syndication execution as well as recurring revenue growth.
Laurie: In less than six quarters, we achieved our long term target we provided during our Investor day in April 2023.
Laurie: I want to recognize everyone at Greenbrier on the shop floor to the boardroom for their actions and executing our ambitious strategy and helping us reach this important milestone well ahead of schedule.
Laurie: Operating efficiencies continue to improve and we're advancing key initiatives across the organization such as in sourcing and mutually expansion.
Laurie: And since we announced plans to expand our own railcar lease fleet, we increase recurring revenues from leasing activities by 25% and are on track to double them within the next four years.
Laurie: We're also nearing our targeted range for return on invested capital, which the originally expected would take until 2026 to treat.
Laurie: And while these key performance indicators are favorable hard work remains.
Laurie: Another highlight in the quarter was commemorated Greenberg 30th anniversary as a public company Iranian the opening Bell at the New York Stock Exchange with my colleagues.
Laurie: This celebration and our robust operating and financial performance in Q4 ended the year on a high note.
Laurie: As you may have seen in our earnings release earlier today, we issued guidance for fiscal 2025.
Laurie: Michael will provide more color shortly but you can expect enhanced aggregate gross margin from physical 2024 level.
Laurie: And strong bottom line results by leveraging the operational efficiencies, we've achieved and remaining highly focused on execution.
Laurie: This is consistent with our primary strategic imperatives to ensure that Greenberg can deliver sustained higher performance across a range of market conditions.
Laurie: Remember, we're also continuing to enhance our market leading position by executing on innovation.
Laurie: For example, our engineering team recently designed a high finding gondola using ultra high strength steel.
Laurie: And our new anhydrous ammonia tank car.
Laurie: Our team continues to leverage our deep industry experience to grow Greenberg sure our customer spending for railcars wheels parts maintenance and management services.
Laurie: This integrated approach will continue to differentiate greenberg from our competitors and position us well for the future.
Laurie: Our commercial team with its strong lease origination capabilities continues to perform well.
Laurie: This gives us excellent visibility for manufacturing and steadily bells, our stream our lease revenue.
Laurie: We start the new fiscal year with a multiyear backlog valued at $3 $4 billion and tremendous optimism about agree we're asking sir.
Speaker Change: And with that let me turn the call over to Brian Comstock, who will discuss our operating activities and market conditions in greater detail. Thanks.
Thanks, Lori and good afternoon, everyone not only was it a great quarter, but our operations performed exceptionally well for the entire year.
Speaker Change: Our leasing team continues to produce results. They grew the fleet by 300 units in the quarter with a stable fleet utilization of around 99%.
Speaker Change: In fiscal 'twenty 'twenty, four we invested over $260 million on a net basis in the fleet supporting our multi year goal of doubling recurring revenue.
Speaker Change: As Lori mentioned, we are 25% of the way towards the goal and expect a stable stream of higher margin revenue that reduces the impact of market cyclicality on our results.
Speaker Change: We remained very disciplined in our approach and we'll continue investing up to $300 million per year on a net basis provided that the fleet.
Speaker Change: Additions meet our return criteria.
Speaker Change: Latest renewal rates continue to grow at double digits and during the quarter, we renewed all units that were coming off lease.
Speaker Change: In fiscal 2025, only 10% of the leases are up for renewal.
Speaker Change: Given the ongoing strength in the leasing market. We are confident we will successfully renewed or remarket. These units.
Speaker Change: In September we renewed and extended our nonrecourse warehouse debt facility.
Speaker Change: Extending the revolving period to September of 2027, reducing the size by 100 million to $450 million and reducing all in pricing by more than 25 basis points.
Speaker Change: This prudently aligns a facility to our current needs and an expected lower interest expense.
Speaker Change: Our average interest rate remains in the mid 4% range significantly lower than current market interest rates.
Speaker Change: Turning to the new railcar market Greenbrier secured orders of 4400 units worth $575 million in the quarter.
Speaker Change: With demand continuing across most railcar types. Our backlog is strong at 26007 hundred units with an estimated value of $3 4 billion, which provides significant revenue visibility there.
Speaker Change: The current market is different than the boom bust build cycles of the past at present. It is a supply driven replacement market that allows us to predict steadier demand over time.
Speaker Change: Traffic and velocity gains are projected to be modest and stable further minimizing railcar demand swings intermodal and carload traffic are projected to grow modestly in 2025, North American railcar fleet utilization is about 81% with 312000 units of the fleet and.
Speaker Change: Storage as of October the true surplus percentage of railcars is lower than the 19% reported due to chronically idle railcar types.
Speaker Change: Overall utilization has been consistent during the last year driving lease rates higher with longer lease terms and responds to tighter fleet supply.
Speaker Change: Not only has the north American market changed over the last several years, but Greenbrier as manufacturing approach has also evolved we are focused on maximizing our industrial footprint.
Speaker Change: This means managing our production capacity for new railcar manufacturing and addressing the growing need for programmatic railcar restoration activities.
Speaker Change: This involves repurposing existing railcars into new equipment service through re body work.
Speaker Change: <unk> conversions re racking or debt conversions.
Speaker Change: It also includes tanker retrofits and re qualifications. This work is performed for a large fleet owners, who require work on hundreds and sometimes thousands of railcars that are tying these customers need streamlined and cost saving options as they diversify and optimize our fleets to meet their own.
Speaker Change: <unk> targets.
In fiscal 2025, we will perform these activities on several thousand units. This work is accretive to Greenbrier and is in addition to our new railcar backlog or current delivery guidance.
Our international backlog remains healthy and our sales pipeline is strong European production capacity is mostly allocated through fiscal 2025 as volumes through our European leasing channel continued to grow.
Speaker Change: Our ability to originate and syndicate leases is integral to the long term performance of our European manufacturing business and we see potential for further growth.
Speaker Change: In Brazil, we are observing an increase in demand that aligns with our expectations as customers finalize infrastructure investments and transition to purchasing of railcars.
Speaker Change: In Q4, we delivered 7000 railcars a significant increase from 5400 in the prior quarter.
Speaker Change: Manufacturing gross margin in the fourth quarter rose sharply to 14.8%, marking the highest gross margin in over six years.
Speaker Change: Q4 benefited from strong syndication activity and product mix.
Speaker Change: Importantly, there has been meaningful margin growth since we initiated our strategic plan 18 months ago.
Speaker Change: Many of the efficiency gains we will be sustained and we've continued to work on other initiatives, including our in sourcing activity expanding in house fabrication for basic primary parts and sub assemblies remains on track, we intend to complete the project in Q3 of fiscal 'twenty 'twenty four.
Speaker Change: And realized the remaining benefits.
Speaker Change: In Q4.
Speaker Change: Syndication of 1600 units with multiple investors generated strong liquidity at margins.
Speaker Change: In fiscal 'twenty 'twenty four we syndicated 6000 units the second highest level in our history. This performance shows that liquidity and demand remains solid in the market.
Speaker Change: Maintenance services achieved another solid quarter, we continue to focus on initiatives to improve efficiencies around car flow cycle times and employee retention. These initiatives have led to year over year increase in the gross margin for maintenance services.
Speaker Change: With major contributions from our experienced and agile management team Greenbrier is successfully implementing our strategic plan position us well for the future.
Speaker Change: Now I'll turn the call over to Michael.
Michael: Thank you, Brian and good afternoon, everyone.
Michael: Given the significant amount of information in the earnings release supplemental slides and prepared remarks by Lori and Brian I'll focus on liquidity in 'twenty 'twenty, four and conclude with fiscal 2025 guidance.
Michael: Greenbrier generated operating cash flow of $192 million for the quarter and $330 million for fiscal 2024.
Michael: The increase to both the quarter and full year was primarily due to net earnings and improved working capital largely attributed to a reduction in inventory and assets held on the balance sheet for syndication.
Michael: Liquidity in the fourth corner improved by nearly a $100 million from 605 million in the third quarter to $698 million in the fourth quarter.
Michael: This consists of $352 million of cash and available borrowing capacity of $346 million.
Michael: Because of the strength and flexibility of our balance sheet, we continue to be well positioned to navigate market dynamics in.
Michael: In fiscal 2025, we expect liquidity will continue to grow driven by improved operating results working capital efficiency and increased borrowing capacity.
Michael: Over the past 10 years, Greenbrier has returned over half a billion dollars to shareholders through dividends and share repurchases, including $9 million of dividends in Q4.
Michael: Continuing on our commitment of returning capital to shareholders last week Greenbrier as board of directors declared a quarterly dividend of <unk> 30 per share.
Michael: In addition to dividends, we have $45 million of share repurchase authorization remaining and we'll be opportunistically repurchasing shares to create long term shareholder value.
Before providing additional color on our fiscal 2025 guidance, it's worth emphasizing that we delivered financial results during the fourth quarter, which surpassed expectations and led to finishing the year on a strong now.
Michael: We continue to execute our multi year strategy and believe our results demonstrate the benefit of our diligent focus on our strategic plan.
Michael: We are well on our way to doubling recurring revenue by fiscal 2028.
Michael: This is from a starting point of 130 $113 million 18 months ago.
Michael: We have already achieved our goal of aggregate gross margins in the mid teens and are close to the return on invested capital target range of being of between 10% and 14% by fiscal 'twenty 'twenty six.
Michael: With these results combined with knowing the energy level and commitment of Greenbrier team I am bullish that we will effectively execute our plan and deliver significant value to our shareholders.
Michael: And now I'll close with comments on our guidance.
Michael: Based on recent trends are robust diversified backlog and current production schedules Greenbrier as fiscal 2025 outlook is as follows.
Michael: New railcar deliveries of 22500 units to 25000 units. This includes approximately 600 units from Greenbrier Maxion in Brazil.
Speaker Change: As Brian mentioned, we have dedicated a portion of our flexible footprint railcar restoration for multiple customers that is accretive to earnings but not included in new railcar deliveries.
Speaker Change: Revenue is expected to be between $3.35 billion to $3.65 billion.
Speaker Change: We expect to grow aggregate gross margin percent 20 basis points to 70 basis points to 16% to 16, 5% from 15, 8% in fiscal 2024.
Speaker Change: We plan to deliver operating margin percent of nine 2% to 9.7%. We chose to include this metric in our guidance since since it not only captures selling and administrative expenses, but it also incorporates how we manage our lease fleet optimization activity reflected through gains on sale.
Speaker Change: For capital expenditures, which will include some carryover spending from our fiscal 'twenty 'twenty four and sourcing initiatives, we expect to invest $110 million in manufacturing and an approximately $10 million in maintenance services.
Speaker Change: We are planning for gross investment of around $395 million and leasing and management services, including capital expenditures as well as transfers of railcars into the lease fleet that were manufactured in 2020 for proceeds of equipment sales are expected to be around $90 million.
Speaker Change: In closing we are very pleased with the quarterly and full year results Greenbrier strong performance in 2024 was attributed to our dedication and attention to creating value for our shareholders. Our financial position is strong and our better together strategy is progressing well I'm confident that Greenbrier is well.
Speaker Change: This and deliver continued value and we remain optimistic about the future.
And now we will open it up for questions.
Speaker Change: We will now begin the question and answer session too.
Speaker Change: To ask a question you May press Star then one on you touched on phone.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Bosco majors with Susquehanna. Please go ahead.
Speaker Change: Good afternoon.
Bosco Majors: Looking into next year I mean, there had been some concern that the north American cycle could be a little more tepid near term just based on.
Bosco Majors: Industry orders, I mean, you're guiding to roughly flattish deliveries year over year can you bridge us through.
Bosco Majors: Your your different markets and maybe give us some color on your backlog coverage and you know where there's opportunity and risk to any of your different regions here. Thank you.
Speaker Change: Yeah. Thanks, Bye estimates Brian.
Speaker Change: I can give you a little bit of color on the backlog in the bridge. So as you know one of the products. It's really bad you know hard has been the automotive market small automotive has been a hot boxcars and some other products have slowed we've we're seeing a mix shift in the back half of the year.
Speaker Change: And we have secured quite a bit of that backlog to date. So that that's really what's providing us with the you know with the confidence in the guidance that we're providing here today and I would say that we came into this year with with significant visibility already bascom more in line with historical averages. So.
Speaker Change: You might see more white space and.
Speaker Change: You know late spring to summer time, but the first six seven months of the year our very.
Speaker Change: Solid from a production perspective in North America, we have quite a bit of visibility in Brazil and in Europe as well.
Thank you for that and I mean piecing it all together it does seem like with the margin improvement.
Speaker Change: There is an opportunity to you know.
Speaker Change: But EPS in the close to $5 range. If you bridge. This all together is that roughly where where you're getting out or there's some other items maybe below the line that we should think about to get from what you've guided officially to EPS. Thank you.
You know Bascom. This is Laurie I think here you're spot on we came very close in 2024 to be we're just shy of $5 and I can tell you that the way that this team is operating and executing I have no doubt that we will continue to show improvements as they worked during <unk>.
Speaker Change: In 'twenty four 'twenty 'twenty five.
Speaker Change: And last piece.
Speaker Change: It seems that the market in North America at least has moved away from the <unk>.
Speaker Change: Long term speculative order from leasing companies and do you think that's a permanent change or reflective of of of some other issues and could we see some of that come back in and in 2025. Thank you.
You know basket that is a great question and quite frankly, it's been one that has benefited greenbrier and other builders over the past few years, because the operating lessor community is by and large been on then on the sidelines with the exception of a few.
Speaker Change: As it has contributed to our strong lease origination capabilities and one of the reasons why we really covered that side of our business.
Speaker Change: Whether or not it's a long term shift.
Speaker Change: This has been going on now for probably four years five years, where operating lessors about on the sidelines started during Covid then as interest rates became very volatile I think it was a cost of capital issue or it was very difficult to match it up in time.
Speaker Change: I'm not sure, but one thing that has shown itself is that.
Speaker Change: There's enough.
Speaker Change: Activity between the the builders and some of the.
Some of the operating lessors to us to take care of the market, so whether they come back in or not it would probably boost.
Speaker Change: Our multi year, new car deals potentially but on the other hand, it tends to potentially erode leasing economics, because they have a more product in the in the hands of others. So.
Speaker Change: Yeah, hopefully that helps you a little bit and I was just.
Speaker Change: And then I think what we've seen over the last 10 years and just a lot more disciplined behavior and the north American market and I think that that's that's boding very well for everyone and while we haven't seen the operating landfill ours make big large spec.
Speaker Change: Speculative orders they have been very active whether it's on the new car side and in the secondary market. So I think the overall market is quite active it's just being very disciplined.
Speaker Change: Thank you all.
Speaker Change: Yeah, Thanks for asking.
Speaker Change: This will conclude our question and answer session I would like to turn the conference back over to Mr. Justin Roberts for any closing remarks. Please go ahead Sir.
Justin Roberts: Thank you very much for your time and attention today. If you have any other follow up questions. Please reach out to Investor relations at G. B R X dot com have a good day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
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