Q4 2024 GATX Corp Earnings Call
Janine: Thank you for standing by. My name is Janine and I will be your conference operator for today.
Janine: At this time, I would like to welcome everyone to the GATX 2024 Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise.
Janine: After today's presentation there will be an opportunity to ask questions. To ask a question press star followed by the number one on your touchtone phone and to withdraw your question please press star followed by the number one again.
I will now turn the call over to Ms. Shari.
Head of Admissions Relations. Please go ahead.
Thank you, Janine.
Janine: Good morning, and thank you for joining GATX's fourth quarter and 2024 Year-End Earnings Conference Call.
Janine: I'm joined today by Bob Lyons, President and Chief Executive Officer.
Tom Ellman, Executive Vice President and Chief Financial Officer
Speaker Change: and Paul Titterton, Executive Vice President and President of Rail North America.
Speaker Change: As a reminder, some of the information you'll hear during our discussion today will consist of four looking statements.
Speaker Change: Actual results or trends could differ materially from those statements or forecasts.
Speaker Change: For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2023 and our other filings with the SEC.
Speaker Change: GATX assumes no obligation to update or revise any forelooking statements to reflect subsequent events or circumstances.
Speaker Change: I'll provide a quick overview of our 2024 fourth quarter and full year results.
Speaker Change: And then I'll turn it over to Bob for additional commentary on 2024, as well as our outlook for 2025.
After that, we'll open the call up for questions.
Bob Lyons: Earlier today, GATX reported 2024 fourth quarter net income of $76.5 million, or $2.10 per doular share.
Bob Lyons: This compares to 2023 fourth quarter net income of $66 million or $1.81 per diluted share.
Bob Lyons: The 2024 and 2023 fourth quarter results include net positive impacts of $0.17 per dollar to share and $0.07 per dollar to share, respectively, from tax adjustments and other items.
Bob Lyons: For the full year 2024, GATX reported net income of $284.2 million or $7.78 per dilute share.
Bob Lyons: This compares to net income of $259.2 million, or $7.12 per dealer's share, in 2023.
Bob Lyons: The 2024 full-year results include a net negative impact of $0.11 per diluted share from tax adjustments and other items.
Bob Lyons: The 2023 full-year results include a net positive impact of $0.05 per diluted share from tax adjustments and other items.
Bob Lyons: These items are detailed in the Supplemental Information Pages of our earnings release.
Bob Lyons: For the second year in a row, full-year investment volume was over 1.6 billion dollars.
Bob Lyons: as we continue to find attractive opportunities to invest in our businesses globally.
Bob Lyons: It should also be noted that RRPF, our engine leasing joint venture, invested over 900 million dollars as we continue to grow the asset base and platform.
Bob Lyons: Lastly, as we noted in the earnings release, we expect 2025 earnings to be in the range of $8.30 to $8.70 per diluted share, which will mark another exceptional year of performance for GATX.
Bob Lyons: With that quick overview, I will now turn the call over to Bob.
Bob Lyons: Thank you, Shari, and thank you all for joining the call today. I'll provide some brief comments on 2024, and then we'll look ahead to the coming year.
I'd like to open my comments first.
Bob Lyons: by thanking all the employees of GATX, those here in Chicago and around the world.
for their outstanding effort and contributions this past year.
We're fortunate to have an experienced team across the board.
Bob Lyons: And while each year they do face new challenges, they find opportunities to put capital to work and very attractive returns.
Bob Lyons: One of the key performance measures we look at is our safety record.
Bob Lyons: I usually mention this at the year-end call, but I should probably do so more often given its importance to us.
Bob Lyons: Our financial results are of no matter unless our employees are safe, and that's all employees.
Bob Lyons: But very important for those who work on the shop floor in an industrial environment.
By all safety measures,
Bob Lyons: 2024 was an outstanding year and we'll continue to strive for better.
Bob Lyons: We had record production in our maintenance facilities this past year.
Bob Lyons: And we coupled that with record-level safety achievements at our shops in North America and Europe.
Bob Lyons: So thank you to all the employees who made that happen.
Ahem.
Bob Lyons: Regarding 2024 results, we came into the year expecting EPS in the 730 to 770 range.
Speaker Change: We exceeded the high end of that range with the results announced today. Importantly, as Shari mentioned, we identified and closed on investment opportunities that will continue to strengthen our global platform and position us really well for the years ahead.
Speaker Change: Rail North America's results were the main driver to our better-than-expected EPS results in 2024.
Speaker Change: We came into the year expecting segment profit at Rail North America to be up between 10 and 20 million.
Speaker Change: And we more than doubled the high end of that range.
Speaker Change: Part of that was on the revenue line, as we had more cards on lease than planned throughout the year. And we did this while essentially holding net maintenance right in line with the expectations we had coming into the year.
Speaker Change: But for those who followed us throughout the year, you know the largest driver to the outperformance of Rail North America was remarketing income.
Speaker Change: Based on the portfolio management plan we had entering the year, we expected remarketing income to come in somewhere between 90 and 100 million.
Speaker Change: As it turned out, demand for GATX assets and the value we derived from those sales exceeded our expectations and we had $120 million in remarketing income.
Speaker Change: I'm encouraged by the fact that despite higher interest rates, secondary market participants continue to value GATX offerings very highly.
Speaker Change: I think this is a testament to the diversity of the asset types that we sell, the quality of the customers and the underlying cash flows.
Speaker Change: the strength of the lease rates and the terms and conditions embedded in our leases.
Not all sales portfolios are equal.
Speaker Change: Our commercial team does an outstanding job of writing business every year that gives us the option to hold these rail cars in our portfolio long term, or if our portfolio optimization strategy dictates to sell.
Speaker Change: And I think the demand for our assets in recent years, despite that rising rate environment, speaks volumes about our portfolio and supports the confidence I have in our ability to continue our track record of success in the secondary market.
Speaker Change: There are a number of other commercial achievements that I'd like to mention that set GATX up very well for the years ahead and we'll stay focused at Rail North America for a moment.
Our renewal success remained outstanding in the mid-80% levels.
Speaker Change: indicating that existing customers are keen to retain GATX assets they currently have on lease.
Speaker Change: Lease rates also remained at attractive levels and the LPI came in at 26.7 in the fourth quarter.
Speaker Change: So, therefore, we're renewing cars at higher rates with quality customers for longer term, and that's allowing us to embed very high-quality cash flow into the portfolio, which will pay benefit for years to come.
Speaker Change: In addition to Roehl North America's outstanding performance, I was also very pleased with the achievements at Roehl International and engine leasing during the year.
Speaker Change: Both GATX Rail Europe and GATX India achieved fleet milestones this past year as we surpassed 30,000 wagons and 10,000 wagons respectively.
Speaker Change: While hitting a wagon count milestone is a positive, it's only a cause for celebration if you do it the right way, and that's by adding assets that earn an attractive risk-adjusted return.
We're doing so in both markets.
Speaker Change: Our international teams will continue to diversify their fleets and customer bases while adding assets in a disciplined manner.
Speaker Change: Before moving on to 2025, I want to comment on overall investment volume.
Speaker Change: Looking back a couple years, in 2023 we exceeded 1.6 billion of investment volume and we came into this past year indicating we would be around the same level.
Speaker Change: Indeed, that's where 2024 played out. We invested over $1.6 billion with an additional $900 million invested at Rolls-Royce Partners, our engine leasing joint venture.
Speaker Change: It's important to note that we do not develop an investment budget at the corporate level and then push it down to the business units. We do the opposite. We go bottoms up with the business units determining what works for them and what opportunities are present in a given year in their respective markets.
Speaker Change: The corporate team then serves as that extra check to ensure we're earning the right return on those investments.
Speaker Change: Looking at 2025 at Rail North America, we expect a very similar operating environment as we experienced this past year. There are two things I want to note. First, as you know,
Speaker Change: Many of you know, overall carload traffic in North America has been relatively flat.
Speaker Change: And it's been that way for a number of years. We expect that to be the case again in 2025.
Speaker Change: I mention this because it's important for everyone to know that we are planning on flat car load growth. If we get any lift above that, that's welcome. That'd be great.
Speaker Change: But it's important to know our results are not predicated on this.
Speaker Change: And second, we've been experiencing and talking about this being a supply-led recovery and that continues to hold true.
Speaker Change: The railcar builders in North America are being very disciplined about matching their output to meet market demand and that's a very good thing.
Speaker Change: Furthermore, given the age of the North American fleet and stable demand from scrappers, temporary imbalances and particular car types are being quickly addressed via scrapping and that's bringing supply and demand back into balance.
Speaker Change: Addressing some of the key commercial terms that we talk about frequently at Roehl North America.
Speaker Change: We expect similar performance in the year ahead as we saw last year. Utilization in the range of 99% plus.
Speaker Change: We expect the LPI to be in the mid to high 20% range, and we expect renewal success above 80%.
With these data points in mind.
Speaker Change: In factoring in additions to the fleet, we expect lease revenue at Rail North America to increase approximately $75 million in 2025.
Speaker Change: Offsetting some of this revenue lift, our tank car compliance activity increases modestly in the year ahead. Therefore, we expect net maintenance to increase approximately $10 million in 2025.
also.
Speaker Change: We anticipate the higher interest rate environment that we've been operating in will continue this year, and our interest expense will rise accordingly.
Speaker Change: Also, with a larger asset base comes increased depreciation, and these two factors combined, the ownership costs of interest and depreciation, we expect to increase approximately $40 million.
is remarketing income.
Speaker Change: However, given the demand and the depth and breadth of buyers we experienced in recent years, and their stated appetite for GATX assets,
Speaker Change: We expect another robust year in the secondary market. As a result, we see remarketing income coming in in the range of $100 to $110 million in 2025. Another very healthy year.
Speaker Change: As for Rail North America's investment volume, 2024 was a record year with over $1 billion in capital put to work.
That was truly an exceptional year.
Speaker Change: In addition to our programmatic investments through our supply agreement, we identified new car spot opportunities and secondary market opportunities.
at an unusually high pace.
Speaker Change: Visibility into these same opportunities in 2025 is less clear right now.
Speaker Change: So we're currently expecting investments in the range of $800 million at Roehl North America.
which will mark another very strong year.
taking all these factors into consideration.
Speaker Change: We see Rail North America segment profit up slightly in 2025 with the high end of that range being plus 20 million.
Thank you.
Speaker Change: At Roehl International, talk about Europe first. The economic environment remains a challenge.
particularly in the region's largest economy, Germany.
Speaker Change: This impacts our customers directly, as it did last year, so growth can be a challenge.
Speaker Change: However, the GATX Rail Europe team has done an excellent job investing and building the business and we'll see profit growth in this market.
Speaker Change: The same in India, although there we have the benefit of economic tailwinds.
Speaker Change: with most economists forecasting GDP in India at 6% or higher for the year ahead. Taken together, we expect rail international segment profit to increase by $5 to $15 million in 2025.
Speaker Change: At GATX Engine Leasing, the market environment remains very favorable. Not only is global air travel continuing to rise,
The long-term fundamental trends in this market are positive.
Speaker Change: Consider that despite periodic shocks to air travel, such as 9-11, the global financial crisis, the pandemic, and various regional conflicts,
Speaker Change: Air travel and the demand for aircraft and engines has shown tremendous resilience.
Rolls-Royce, our partner and our RPF.
Speaker Change: is posting very strong operating and financial results and their business has strengthened materially.
Speaker Change: As we've mentioned, in 2024, RRPF invested $900 million for its own account, bringing its total asset base to over $4.7 billion.
Speaker Change: Additionally, GATX grew its direct engine leasing portfolio in 2024 to over $900 million.
Speaker Change: Given the outlook for our engine investments, we expect the engine leasing segment profit to increase by $20 to $30 million.
in 2025.
Speaker Change: Regarding SG&A, we are working very hard to hold the line on costs despite inflationary pressures.
In 2025 our goal is to hold that increase
Speaker Change: to a modest level over 2024, something in the $5 million range.
Speaker Change: But I want to be clear, that's going to be difficult to do. But we are hyper-focused on it, and we're all paying attention to cost controls. We want to run our business as efficiently as we can.
for Total Investment Across GATX.
Speaker Change: I noted that Rail North America will be in the $800 million range.
Speaker Change: And flowing this through to GATX Consolidated, we expect 2025 full-year investment volume to be in the range of $1.4 billion. That would mark another outstanding year.
Speaker Change: Putting all these factors together, we expect EPS in the range of $8.30 to $8.70 per diluted share, which would mark another record year of EPS at GATX.
Speaker Change: In closing, I'd like to thank our customers around the world.
Speaker Change: We provide assets that are critical, critical to your operations and we take that responsibility and the trust you place in us very seriously.
We'll continue working very hard on your behalf.
Speaker Change: And lastly, several of our largest shareholders have been with GATX for 10 plus years, and in some cases, multiple decades.
Speaker Change: I want to thank them and all of our shareholders for your support.
Speaker Change: We will remain focused on investing in a disciplined manner, growing our global franchise, and generating attractive risk-adjusted returns for you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you have a question, kindly press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to withdraw, kindly press the star followed by the number 1 again. If you are using a speakerphone, please lift the handset before pressing it.
Speaker Change: Our first question comes from the line of Andres Tomcic from Goldman Sachs. Please go ahead.
Hey everybody, thanks for taking my question.
Robert Hellerman, Robert Lyons
Speaker Change: Sure, thanks for the question. This is Paul Titterton speaking and yeah, really what I would say is, I'll kind of echo the themes that Bob is hitting on in his remarks, which is to say that we really see a market that is nicely balanced between supply and demand.
where the builders are not adding.
more assets into the market than demand would otherwise indicate.
And what that basically means, that as long as we...
Speaker Change: price to the market we can keep our assets in place and as Bob mentioned
Speaker Change: In general, with the level of service that we provide, we find that our customers would, all else being equal, prefer to retain our assets. And so, this is just a good market in which to be able to capitalize on that and generate those high renewal success rates.
Speaker Change: Got it, thanks. And is the outlook for rail car leasing better or changed at all with the new U.S. administration? Just trying to understand the puts and takes you and the customers have been...
thinking through relative
Speaker Change: you know, to a potentially less regulated business environment, albeit with the potential for tariffs.
How are you guys game planning that?
Speaker Change: I'll start answering for North America. This is Paul again speaking and just saying it's really too early to to know What the effects are going to be certainly weren't we're not hearing anything either particularly negative or positive from our customer base for our customer base Right now I would say it's business as usual
Speaker Change: I will commend a couple of administration decisions, Dave Fink heading the FRA and then Patrick Fuchs heading the STB. Those are both people the GATX knows very well and respects, so certainly those early decisions from the administration are positive. But broadly speaking, I would say it's early days.
Speaker Change: Yeah, and I'll just add, too, that the REL team here in North America has done a very good job of looking at a lot of different potential tariff scenarios and looking at all of them.
Speaker Change: are the ways in which we source assets, whole rail cars all the way down to the component level.
Speaker Change: and we have certainly rank-ordered areas of risk and alternatives we can pursue depending on how tariffs do play out. So I think we're well prepared.
Got it, thanks. And maybe just switching gears...
Speaker Change: Talking about the secondary market activity, nice to see that still robust. Just in the fourth quarter relative to the third quarter earlier in 2024, can you talk about, you know, if there are any notable changes in the types or value of the cars being sold or acquired?
Speaker Change: And then, how can we expect that mix to develop into 2025? You know, what could put the gains, you know, relative to your targets, either above or below? What could we be looking for there? Thanks.
Speaker Change: Sure, and I'd say there was really nothing unusual in the fourth quarter. We do very programmatic sales in a given year. We're in the market frequently.
Speaker Change: and you know the portfolio that we put together and each of those sales is done with a lot of work analysis here internally.
Speaker Change: What are the right assets to be selling? These are high quality assets and we'll look at things like customer exposure, exposure to a particular car type.
Speaker Change: Those are some of the things we'll think about when we identify what's potentially going to be in a sale package. With a fleet as diverse as ours...
Speaker Change: That gives us a lot of alternatives to populate those packages so we're not loading them up with any one particular car type.
Speaker Change: It's really a more holistic portfolio view. So I don't see that changing at all in 2025. The packages we put out for sale will have a lot of high-quality customers, high-quality assets, great cash flows, and really diverse pools of assets for sellers to consider.
Speaker Change: Got it. Thanks, Bob and team. I'll hop back into queue.
Speaker Change: Thank you, our next question comes from the line of basketball majors from Susquehanna. Please go ahead.
Speaker Change: Good morning. Can you talk a little bit about the sequential development in lease rates and any trends that seem to be emerging in particular car types or the overall market?
Speaker Change: for a lot of car types are relatively flat, but flat at strong and attractive levels for us. So really nothing new to report versus last quarter, but continues to be a favorable environment from a pricing standpoint for the most part.
Speaker Change: are holding in at very good levels and we're going to renew somewhere in the range of 20,000 rail cars in the year ahead. So we'll have a lot of at-bats and opportunities to capitalize on that rate environment.
Speaker Change: And to that 20,000 cars in the year ahead, can you remind us, after this year, how much of the fleet will be left to renew that hasn't been touched in the, you know, stronger environment? Call it 2021 or 2022?
Yeah.
Speaker Change: Hi Baskin, this is Tom. So you know it's not a totally precise measurement because we're constantly repricing, but overall we're at about the halfway point.
Speaker Change: As of today or after the the 20,000 renewals just to clarify there? Yeah, that's as of today.
I'm so sorry. I'm so sorry. I'm so sorry.
Speaker Change: And just one more for me, in the engine leasing business, you know,
Speaker Change: How do you feel about the balance of JV investment versus direct investment going forward and any other you know more detail on the relationship with with Rolls as their financial outlook has improved? Thank you.
Speaker Change: Well, I would say in terms of our relationship with Rolls, we're in year 27 of the joint venture.
Speaker Change: And, you know, that relationship remains very strong. Rolls has been a great partner all those years, very communicative, never a surprise, very open about what their strategies and plans are, and those are fully shared with us.
Speaker Change: And in terms of the, you know, direct investment balance, this year we did $260 roughly million in 10 engines.
Thank you.
The End
Thank you. Our next question comes from
Speaker Change: Good morning, Bob. Good morning, Paul. Good morning, Tom. Good morning, Shari.
Morning. Morning.
Speaker Change: First question would be just on capital allocation. So you said about $800 million of investment volume in Real North America, which is I guess about...
Speaker Change: $360 million lower, but your overall kind of rail investment volume would be about $270 million lower at the $1.4 billion level. So where do you expect to
ratchet up the investment outside of North Carolina.
North America
Speaker Change: Yeah, so as you mentioned Justin, Bob already commented on Rail North America.
the other segments.
Speaker Change: are pretty similar to what we're seeing this year. We expect something similar in engine leasing.
Speaker Change: expect something similar at Trifleet. The offset is we expect Rail International to be up a bit, maybe in the $50 to $100 million range more. And as you'll recall, that business had experienced some supplier challenges getting cars produced, and we do not expect to face
Speaker Change: the same degree of challenges going forward, which is why that number is going up.
Speaker Change: Gotcha. All right, that's great. And then, to the extent you're, you know, spending $270 million less or laying out $270 million less on investment volume,
Does that just mean that your net debt...
sort of
Speaker Change: creeps up a little bit more slowly or are you thinking any increased capital return?
Speaker Change: Yes, so overall what I would tell you is we expect our leverage to remain relatively consistent over the years.
Okay.
and leverage defined on what metric?
debt equity
Okay.
Gotcha. Last question would be...
Speaker Change: I guess, with respect to the maintenance expense being, you know,
Speaker Change: higher on Tankhard qualifications, you know, when does that bolus of spend finish and how much
Speaker Change: Would you come down from there on a normalized maintenance expense?
Speaker Change: So, this is Paul speaking, and really 25 is our last...
Speaker Change: high compliance event year for a little while. So we would expect it to begin to come down in 2026.
Speaker Change: I don't necessarily want to get into a specific range, but I would just say there is a reasonable opportunity for improvement there in net maintenance expense as we see the compliance calendar moderate in 2026.
Gotcha. All right, thank you.
Thank you.
Speaker Change: Our next question, or last question, comes from the line of Brenton McCarthy from Sudowoodi. Please go ahead.
Speaker Change: Great. Good morning, everybody. Thanks for taking my questions. I just wanted to start off on remarketing income, the favorable outlook there for 2025. I think at the start of last year, there was a thought that perhaps higher interest rates might lead to a
Speaker Change: maybe softer demand environment as investors, look for yield elsewhere. Just want to get your thoughts on what you think the interest environment might look like for 2025 and how that will play into secondary market demand.
Speaker Change: Well, we are anticipating that the interest rate environment we're in right now will continue in 2025 so, you know, at higher levels than what we experienced, you know, really over the course of the prior 10 years as they ramped up in...
Speaker Change: 23 and 24. We did anticipate that that might slow some secondary market activity really towards the back half of 23 and ended throughout 2024 but we just didn't see it.
Speaker Change: and and I think that is a reflection of the fact that rail cars
Speaker Change: are great stores of value. They have high-quality leases and cash flows attached to them.
Speaker Change: And even in a higher interest rate environment, we've continued to see the breadth and depth of buyers hold in very well. Interest levels are high. Multiple bidders on all different components of a portfolio.
Speaker Change: and a fairly long list of potential buyers to go out to.
Speaker Change: You know, that's why we're comfortable in that 100 to 110 million range for this year is really based on the feedback we're getting real-time from the market.
Speaker Change: I'll just add too, this is another benefit of the fact that we're seeing more disciplined new car production because the universe of investors that want to invest in railcars really have to focus more on the secondary market. So as a seller, that benefits us as well.
Speaker Change: Great. That's helpful. That's helpful. And then, yeah, I think on the rail North America side, you mentioned for 2025, you know, segment profit higher there, you know, based off, you know, more cars on lease.
Speaker Change: Do you look at that as being from some of the supply agreements in place, or do you think that you might be going out to the secondary market more frequently in 2025?
Speaker Change: Well, we'll definitely continue under our supply agreement that we have in place. So we'll be taking delivery of 3,000 cars under that program alone in 2025.
Speaker Change: The secondary market activity that we undertook in 2024 was, as I mentioned in my opening comments, kind of alluded to, was particularly robust.
Speaker Change: at levels we had not experienced before. So we're not assuming we'll duplicate that again in 2025. But we absolutely will be active as a buyer in the secondary market again.
and in the hundreds of millions range we anticipate.
Speaker Change: in 2025. So definitely we'll be in the market and look at assets that fit well with our portfolio.
Speaker Change: Yeah, and just to comment on your your statement about this
Speaker Change: is the driver of the range that Bob provided. So Bob noted that the gains on asset sales are expected to be a little bit lower than this year's 120 million. That offset is largely coming from that repricing that we talked about from the fleet.
Speaker Change: So, the fact that those lease rates are going up, we're getting the mid to upper 20% more on each of those leases is really a key driver to the increased financial performance.
Great. That's very helpful. Thank you. That's all from me.
Thank you.
Thank you.
Thank you. That concludes our Q&A session.
Speaker Change: I turn the call back to Shari Hellerman for final closing comments.
Shari Hellerman: I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.
Speaker Change: That concludes our conference call for today. You may now disconnect.
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