Q1 2025 The Greenbrier Companies Inc Earnings Call
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Fleet utilization is expected to remain generally steady, but we believe it will come down slightly during 2025 as north American railcar deliveries outpaced retirements.
Our European backlog remains healthy and our sales pipeline is strong as the commercial team continues to execute including lease originations.
As a reminder, the expansion into lease originations and Europe allows us to stabilize our production activity similar to what we do in North America and is integral to the long term performance of our European business.
Lastly, in Brazil, we are observing an increase in demand as customers finalize infrastructure investments and transition to purchasing railcars.
Greenbrier is uniquely positioned to deliver strong performance across all market conditions and in every geography, where we operate I'm extremely optimistic about our future.
Brian: And with that I'll turn the call over to Brian who will discuss our operating activities in greater detail.
Brian: Thank you Laurie as you mentioned the actions we are taking to strengthen greenbrier as long term prospects R&D generating enthusiasm throughout the organization.
Brian: Now I'll turn to the quarter.
Brian: In Q1, we delivered 6000, new railcars manufacturing gross margin was strong at 17, 1% benefiting from a product mix weighted to more profitable car types, and then ongoing optimization in our manufacturing process and capacity.
Brian: The leasing team continued to produce good results as well Greenbrier as lease fleet grew by 1200 units in the quarter with stable fleet utilization of roughly 99%.
Brian: Recurring revenue on a trailing four quarter basis is 148 million or 32% higher than our starting point.
Brian: We remain disciplined in our approach and we will continue investing up to $300 million per year on a net basis provided that the railcar fleet additions meet our return criteria.
Brian: Lease renewal rates continue to grow in double digits during the quarter.
Brian: As a reminder, we entered fiscal 2025.
Brian: It was about 10% of our leases up for renewal and.
And we have already successfully renewed about half of those in Q1.
Brian: Given the ongoing strength in the leasing market. We are confident that we will successfully renew or re market all of the remaining units.
Brian: In Q1, Greenbrier syndicated 800 units with multiple investors continuing to generate strong liquidity and margins.
Brian: Our capital markets team executed its first transaction with a new syndication partner.
Brian: The team also executed on a meaningful buy sell opportunity in the secondary market that generated positive margin with a very short hold period.
Brian: Looking at the new railcar market Greenbrier secured global orders of 3800 units were $520 million in the quarter.
Brian: With lease originations about 45% of this order activity.
Brian: Based on what we've seen after the U S election in early November we believe the slowdown in new railcar order activity over the last few quarters.
Brian: Has been temporary in fact in the month of December which has traditionally been very.
Brian: Quiet due to the holidays.
We secured global railcar orders of approximately 1400 units with our sales pipeline strengthening.
Brian: We expect favorable customer decisions to come quickly on the back of policy announcements.
Brian: Our backlog is strong at 23400 units with an estimated value of $3 billion, providing significant revenue visibility.
Brian: In addition to our backlog programmatic railcar restoration activity that is not included in our backlog has become more predictable in nature.
Brian: As a reminder, this activity involves repurposing existing railcars into new equipment service through rebounding work stretch conversions re racking or debt conversions.
Brian: It also includes tank car retrofits and re qualifications.
Brian: The impact of re qualifications is highly relevant as this work is statutory and required to be completed every 10 years.
Brian: This work is performed for large fleet owners, who require work on hundreds and sometimes thousands of brokers at a time.
Brian: In fiscal 2025, we will perform these activities on several thousand units and expect this work to continue at a healthy pace for the next few years.
Brian: These activities are not just accretive to greenbrier they support our ability to utilize our capacity in an efficient manner railcar restoration and re qualification work can be performed at our manufacturing facilities or at our maintenance locations depending on various factors. This provides us significant.
Brian: Flexibility to maximize the use of our existing footprint.
Brian: Overall, we expect to deliver strong performance through fiscal 'twenty twenty-five as Greenberg continues to successfully implement its strategic plan.
Michael: With that I'll hand, the call over to Michael.
Michael: Thank you Brian.
Michael: I will cover our financial highlights and drivers of performance in Q1 that leads us to affirm our fiscal year 2025 guidance today.
Michael: As Justin mentioned, you can find our earnings release and supplemental slides on our website.
Michael: Greenbrier is fiscal 2025 is off to a great start with strong operating performance highlighted by a sequential increase in aggregate gross margin percent and operating margin percent.
Michael: Revenue in the quarter of $876 million represents a new first quarter record for Greenbrier. The decrease compared to Q4 was primarily attributed to lower deliveries, resulting from sin from reduced syndication activity due to timing.
Michael: Aggregate gross margin increased by 160 basis points to 19, 8%, marking the third consecutive quarter of margin expansion.
Michael: This increase is primarily due to a beneficial product mix and strong operating efficiencies.
Michael: First quarter operating income was 112 12 million or 12, 8% of revenue. It's 100 basis point increase for the quarter was due to improved profitability and lower selling and administrative expenses, our quarterly tax rate of 37, 8% was higher than the fourth quarter, mainly due to.
Michael: The geographic mix of earnings and the impact of unfavorable items related to foreign currency exchange rates.
Michael: Net earnings attributable to Greenbrier of $55 million generated diluted earnings per share of $1 72, and was the strongest first quarter earnings per share since 2016.
Michael: And finally EBITDA for the quarter was $145 million or 16, 6% of revenue.
Michael: For 12 months ending November 32024.
Michael: Our return on invested capital or ROIC was 11, 2%, marking a 140 basis point sequential increase and within our 2026 target range of 10% to 14% that was announced less than two years ago. The.
Michael: The improvement in ROIC reflects the enhanced operating and capital efficiency generated by the execution of our better together strategy.
Michael: Moving to our balance sheet and liquidity Greenbrier is Q1 liquidity remained strong at $549 million, consisting of $300 million in cash and $249 million in available borrowing capacity.
Michael: Our cash flow from operations was a use of cash of approximately $65 million. This was primarily due to leased assets placed on the balance sheet during the quarter awaiting syndication or capitalization during the year, we expect liquidity in this in fiscal 2025% increase driven by continued strong.
Michael: Operating results working capital efficiency and increased borrowing capacity.
Michael: We will remain disciplined in managing our capital structure and balance sheet, our net debt to EBITDA stands at approximately three times and has been trading lower trending lower as we continue to generate strong operating earnings and work towards reducing our recourse debt.
Michael: Switching to capital allocation, we remain disciplined and are committed to returning capital to shareholders through a combination of dividends and stock buybacks. Today Greenbrier is board of directors declared a dividend of <unk> 30 per share. This is our 40 <unk> consecutive quarterly dividend.
Michael: Additionally, Greenbrier as board of directors renewed and extended our 100 million share repurchase program.
Michael: We are committed to deploying capital to create long term shareholder value and we will continue to utilize this capacity opportunistically and within the framework of our broader capital allocation strategy.
Michael: Finally, we affirm our previously issued guidance based on current trends and production schedules and our fiscal 2025 revenue delivery and margin guidance are unchanged.
Michael: I want to highlight a few points regarding our margin guidance, we expect improvements in operating efficiencies to continue however, the product mix in the second half of the year will change as expected.
Michael: Our margin guidance target remains intact and is unaffected by this product shift we.
Michael: We are updating our capital expenditure guidance modestly and investments in manufacturing Rins are are unchanged and expected to be around $120 million.
Gross investment and leasing and fleet management of $360 million in proceeds of equipment sales of $60 million have been reduced.
Michael: This is approximately a $5 million reduction in guidance on a net basis.
Michael: This is primarily due to better visibility into our plan for fiscal year 2025, and while the number of railcars to be capitalized and sold out of our lease fleet will decrease we still plan to deliver against our targeted investment of approximately $300 million.
Michael: In conclusion.
We are incredibly pleased with the first quarter results our financial position is strong our strategy is progressing well and our outlook for fiscal 2025 is positive I'm confident in our near and long term ability to grow earnings while continuing to deliver strong returns on the capital we invest this all supports increased.
Michael: Shareholder returns in years ahead, and now we'll open it up for questions.
Michael: We will now begin the question and answer session.
Michael: To ask a question you May press Star then one on your telephone keypad.
Michael: If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question is from Ken <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, great good afternoon.
Lori: Lori congratulations some some.
Speaker Change: Nominal.
Speaker Change: The improvements over the last few years.
Speaker Change: The strong margin game, the 17% I'm not sure. If you can parse that to the old category. Just so we can kind of understand.
Speaker Change: What's going on with the manufacturing, but maybe just delve into it if only on a combined basis what drove it I guess, you talked a little bit about mix product mix that might shift in the back half, we see pricing, especially on the new orders kind of is up so maybe you could talk about what what drove the margin gains.
Speaker Change: And then Brian in your commentary you noted the slowdown was temporary.
But in the press release. It noted demand is easing slightly for certain railcar types in and in some markets. So I just want to understand it sounds like you're saying it was temporary in some selected in the press release may be saying, it's it's it's maybe potential for slowing so if I can just get an understanding there too. Thanks.
Ken: Sure. Thanks, Ken.
Speaker Change: I will say that I appreciate the congratulations, but it's definitely a broad team effort to be able to achieve the results that we've achieved the last couple of years.
Guarding the margin gains and parsing it between.
Speaker Change: The historical or legacy manufacturing versus our maintenance services.
Speaker Change: If you think back on some of our historical financials maintenance services is you know it is.
Speaker Change: Fairly modest sized business so when it blends in with manufacturing it doesn't really move the dial.
Speaker Change: On that margin percentage, if we looked at that when we were putting this together to make certain that we werent going to be skewing any historical data either so the real driver is the fact that our team.
Speaker Change: Teams have been focused on how to continue improving manufacturing efficiencies how can we <unk>.
Speaker Change: <unk> of the things that we need to end source, eliminating transportation cost how can we drive hours per unit down or how can we manage our overhead. It's the kind of work that will sustain us across a variety of car types product mix markets I will say.
Speaker Change: Q1 did benefit from certain car types that Brian can speak to but theyre more specialized car types that end up having.
Speaker Change: A better gross margin.
Speaker Change: Yeah, I think that maybe just to complete what Lori said is at the end of the day.
Speaker Change: It's a little bit of everything it's like the perfect store you've got some of it is.
Speaker Change: <unk> mix, which is weighted primarily towards the auto sector and some of our specialty cars that we have highly engineered and.
Speaker Change: And some of it is the efficiencies and the in sourcing initiatives that we took on I guess 18 months ago give or give or take and we're starting to see a lot of that benefit start to come through the P&L as we look forward on the commercial side.
Speaker Change: The questions towards the commercial side.
Speaker Change: As.
Speaker Change: Leading up to really kind of the elections I think you saw a lot of apprehension from customers trying to figure out what is policy going to be how are things going to look and if we can defer decisions will defer decisions were starting to see some of that break loose not only are we seeing it break loose we're starting to see.
Speaker Change: The pipeline build December was a very strong month for building the pipeline January looks like it's going to continue.
Speaker Change: That rate is car types I would say that our more traditional its covered hopper cars. Its chemical tank cars is.
Speaker Change: Some various gods.
Speaker Change: Boxcar replacements, it's those types of cars that we're seeing that are gaining some momentum versus where we've had a strong emphasis on some specialty gondolas.
Speaker Change: And highly engineered cars as well as auto.
Speaker Change: So hopefully that helps.
Speaker Change: No. It does it is it great explanation and then just if I can sneak one more in just it looks like the backlog.
Speaker Change: Came down right. So you went from you've gone down from what 3383 $734 3 billion.
Speaker Change:
Speaker Change: Is that kind of the Tentativeness youre talking about and maybe it it bounces back or do you think just in this environment. We're starting we're going to kind of draw down on that backlog.
Speaker Change: Let me start with something and then you can add Brian. It is interesting when you say that $3 billion worth of backlog.
Speaker Change: Pretty incredible.
Brian: So I think sometimes we forget to appreciate how far we've come in and where are we set. So we're very pleased to have that sort of backlog.
Brian: But this is why we've been focusing our attention on our footprint and thinking about how do we utilize the footprint we have to the best of its abilities and so that's our footprint in the U S. That's our footprint in Mexico, and what is the particularly the north American industry need do they need new railcar to they need <unk>.
Speaker Change: <unk> occasion do they need some of these re bodies that Brian was talking about so that work is not part of backlog. So I think if you were to if we were able to bundle all that together you would see growth in backlog, that's what gives us the confidence.
Speaker Change: And the positiveness about our outlook as we have all this different activity to utilize the footprint. We have it just doesn't always show up in that backlog bucket, yes.
Speaker Change: I'll just tag on to what she said because that really is.
Speaker Change: The phenomenon of what Youre seeing is as we think about our manufacturing footprint and how we utilize.
Speaker Change: The whole of Greenbrier in all of our strengths one of those strengths is in.
Doing these re bodies and these sustainable conversions and we've kind of built on that factor. So as the needle on new car kind of ticks down a little bit we tick up what we do on the refurbishment side and then as demand.
It comes back we can look at rebalancing that on the refurbishment side, but if you think about backlog keep in mind to Lori's point. There are several thousand cars that arent in that number that fit into that category that typically have in AOSP of 50.
Speaker Change: 50 or $60000 per car, so that really makes a pretty big swing as you think about backlog numbers and its margin very margin accretive it's very margin accretive.
Speaker Change: Great I appreciate the time thanks, guys.
Ken: Thanks, Ken Thanks, Ken.
Ken: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Bascom majors with Susquehanna. Please go ahead.
Bascom Majors: Thanks for walking through sort of the incremental recovery and optimism in the the order flow over the last and inquiries over the last several weeks here can.
Bascom Majors: Can we talk a little bit more more of the production plan as you have a guy that I know that can get differently deliveries with some of what goes on the balance sheet and what goes out in syndication and the timing of that but.
Bascom Majors: As guided today are how does the production plan look versus.
Bascom Majors: What you did last quarter into the second half and.
Bascom Majors: When do we get to the point, where you need better orders to come through to sustain that or have to make a decision to taper that to protect margins.
Speaker Change: I'll take the first part of that and then Brian and Lorie can can kind of talk about the decisions that need to be made so big picture Bascom production.
Bascom Majors: Production is is <unk>.
Bascom Majors: Probably going to be similar in the back half of the year as it is in the first half.
Bascom Majors: Within a few hundred units again part of this is you think about our railcars out of railcars at a railcar so size matters.
Bascom Majors: And as you shift from maybe larger car types to smaller car types, so on and so forth but.
Bascom Majors: Big picture, we don't see a significant shift in our production rate per se, but it is more about the types of cars moving until a little bit more of a commoditized type of car in the back half versus the first half.
Bascom Majors: And then from a decision perspective about when you think about orders and I think it really comes down to visibility.
Bascom Majors: Visibility for example had some of the orders continued to slow through the next few months, then we may be having a different decision, but as things kind of pivot and come back and visibility on the lines of material order dates are still.
Bascom Majors: Reasonably in check than we continue to maintain our production status. So we don't at this stage, we don't see any.
Bascom Majors: Any change in our production status.
Bascom Majors: And just to be clear on that.
Go ahead I'm sorry.
Sure a bathroom I was just going to say and to just to reemphasize I think something that you said earlier, Brian is we really have seen the pipeline of activity pick up in the months of December here and in early January with some pretty exciting opportunities, particularly for the North American market. So that's what gives us that.
Bascom Majors: That optimism and you know looking at or however, many different production lines, we have going at any point in time, that's just part of what we do weekend and week out you have to go ahead and test and the one thing I would say are asking is this is an experienced management team that's agile and they will move sorry, I got it.
Bascom Majors: Astaire for sand experienced.
Bascom Majors: Our seasoned management team that is.
Bascom Majors: It has been through several different types of cycles and several different commodity plays and at the end of the day.
Bascom Majors: With the extensive relationships and experience in the marketplace.
Bascom Majors: We feel like we're very well positioned to understand what's coming our way and be able to react quickly good or bad.
Bascom Majors: And to and thank you for.
Bascom Majors: It sounds like.
Bascom Majors: The inquiry and order rate you've had recently is supportive of that backlog. If it continues or do we need to see it pick up further from the last few weeks or month and a half to really support the delivery guidance.
I don't I don't really I don't I would say, we don't really need to see a material increase or uptick.
Bascom Majors: I would say is we do have a little bit of open space kind of in the July August timeframe, which is pretty normal for us in this time of year end.
Bascom Majors: I would say at this point, we are not concerned about being able to fill that out expected rates and I would say, sometimes we like having a little bit of open space in our production because that allows us to be responsive when a customer of any.
Bascom Majors: Had the knee pop up that they didn't fully appreciate.
Bascom Majors: Thank you to guidance clarification, then I'll pass it on the the tapering from the gross margin where you are in this quarter or two where the guidance is how much of that is the mix.
Bascom Majors: Impact you've talked about from going to more commodity car types are there other pieces in that or is there just some conservatism.
Bascom Majors: The second half from not knowing exactly what the orders in car types look like and it may be that.
Bascom Majors: It'd be better if things go as planned and.
Bascom Majors: The second point you made some comments on liquidity.
Bascom Majors: Working capital I mean, it sounds like the views on cash flow or a bit more constructive than we've heard from you recently any clarification around you know what that means for operating cash flow or free cash flow or however, you'd like to frame. It. Thank you.
Bascom Majors: I will jump on margin if you want to take the cash flow Michael that was great. So what.
Bascom Majors: What I would say is that given.
Bascom Majors: Where we're at and the fact that we are let's say 12 days away from a new administration stepping in we believe that we have pretty good visibility on margins, but also do have a little bit of.
Bascom Majors: I would say caution baked in just in case things happen that we arent expecting or there's an or unanticipated events.
Bascom Majors: A lot of I think the margin shift is related to.
Bascom Majors: The mix shift first half versus back half.
Bascom Majors: But at the end of the day. It is we just want to make sure that we.
Bascom Majors: We are not out over our skis from that perspective, and we're constructive but not all.
Optima overly optimistic or or out of touch with reality from that perspective, and just saying that before Michael goes to liquidity I'll say and that's why I tried to emphasize early on that we are focused on finding ways that we can improve our production efficiency that sustain it across various <unk>.
Bascom Majors: Demand environments.
Bascom Majors: And just just jumping in on liquidity, you know I'm, having the strong margin.
Tailwind going into the year and kind of moving through the year is helping us the.
Bascom Majors: <unk> seen that we're seeing from a manufacturing standpoint is helping as well and you know we're very.
Bascom Majors: Taking a careful and diligent in how we invest our capital so.
Bascom Majors: Thank you.
Bascom Majors: That's been a real positive for US. We also have teams working on working capital on really across the globe and we're watching that very closely too. So I think we have good visibility into it than I am.
Bascom Majors: I'm pretty excited about our plans as we finish to the year.
Bascom Majors: Thank you all.
Bascom Majors: Thanks Pascal bathroom.
Speaker Change: Question is a follow up from Ken <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, Thanks for the quick one maybe.
Speaker Change: Maybe just to summarize baskin was kind of a hit.
Speaker Change: Hitting on that the guidance right. So if you have such a strong beat this this quarter you didn't raise fiscal 'twenty five.
So I guess, Justin you just throw out there its just conservatism or.
Speaker Change: You know maybe what what gets you back into range why do we need to see that you're not raising the target at this point given the strong first quarter performance.
Speaker Change: Well I think what I would say is we have a we do have some open space in the back half of the year.
Speaker Change: And we are seeing strong pipeline and increases in that activity.
Speaker Change: But part of it is also.
Speaker Change: Looking at the.
Speaker Change: Kind of mix of orders the types of cars, we see coming down the pipeline versus what we've been building and also just bearing in mind that this is full year guidance and I think we would say we would love to be at or near 20% aggregate margins for the entire year, but I don't think we are ready to commit to that at this point.
Speaker Change: Okay.
Speaker Change: Thanks, guys I appreciate it thanks guys.
Speaker Change: Yes.
Speaker Change: This concludes our question and answer session.
Speaker Change: I'd like to turn the conference back over to Justin Roberts for any closing remarks.
Justin Roberts: Thank you very much for your time today, if you have any questions. Please reach out to Investor relations at <unk> Dot com, Thanks, and have a good day.
Justin Roberts: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Justin Roberts: [music].