Q1 2025 Trinity Industries Inc Earnings Call
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Operator: Good morning and welcome to the Trinity Industries Inc first quarter 2025 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good morning, and wide culture of Trinity Industries, Inc. First quarter 'twenty quantified earnings call.
All participants will be in a listen only mode Sugared should you need assistance. Please take note of podcast specialists by pressing the star key followed by zero.
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Leigh Mann: I would now like to turn the conference over to Leigh Ann Mann, Vice President, Investor Relations. Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's first quarter 2025 financial results.
Speaker Change: Now I'd like to turn the conference over to Leann Mann, Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, everyone. We appreciate you joining us for the company's first quarter 2025 financial results Conference call.
Leigh Mann: Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President, and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our investor relations website at www.trin.com. These slides are under the events and presentations portion of the website, along with the first quarter earnings conference call event. A replay of today's call will be available after 1030 a.m.
Speaker Change: Our prepared remarks will include comments routines habits, Trinity's Chief Executive Officer.
Eric: And Eric.
Eric: The company's Chief Financial Officer, they will hold a Q&A session. Following the prepared remarks from our leaders.
Eric: During the call today, we will reference certain non-GAAP financial metrics and reconciliations to the non-GAAP to comparable GAAP measures are provided in the appendix to the quarterly investor slides, which are accessible on our investor relations website at www dot trends that might be.
Eric: These slides are under the events and presentations portion of the website along with the first quarter earnings Conference call.
Eric: A replay of today's call will be available. After 10 30, a M. Eastern time through midnight on May eight 2025 replay information is available under the events and presentations page on our Investor Relations website.
Leigh Mann: Eastern Time through midnight on May 8, 2025. Replay information is available under the Events and Presentations page on our Investor Relations.
Gene Savage: It is now my pleasure to turn the call over. Thank you, Leigh Ann, and good morning, everyone. Before we begin with financial and operational results, I would like to congratulate our Jonesboro Maintenance Facility on achieving a significant milestone in March. This facility has gone five years without a lost time incident. Safety is a core value at Trinity, and this achievement is certainly worth acknowledging.
Eric: It is now my pleasure to turn the call of X gene.
Speaker Change: Thank you Ian and good morning, everyone before we begin with financial and operational results I would like to congratulate our jonesboro maintenance facility on achieving a significant milestone in March.
Eric: This facility has gone five years without a lost time incident.
Eric: Safety is a core value at training and this achievement is certainly where we're thinking already.
Gene Savage: As you may have heard from other companies this earnings cycle, 2025 is a year of uncertainty. While we are not immune to the current macroeconomic challenges, we are operating with agility and adaptability to respond to customers and market conditions appropriately. The rail car manufacturing industry has always had a cyclical element to it. And while we continue to believe the fundamentals of the industry have changed and this cycle is being led by the replacement level demand, the current environment gives us the opportunity to prove the resiliency of our platform.
Eric: As you may have heard from other companies. This earning cycle 2025 is a year of uncertainty.
Eric: While we are not immune to the current macroeconomic challenges, we are operating with agility and adaptability to respond to customers and market conditions appropriately.
Eric: The railcar manufacturing industry has always had a cyclical element to it and while we continue to believe the fundamentals of the industry has changed and this cycle is being led by the replacement level demand. The current environment gives us the opportunity to prove the resiliency of our platform.
Gene Savage: In the first quarter, GAAP earnings per share for Trinity Industries were $0.29 on revenues of $585 million. I work to lower the break-even on the railcars and improve the rail products group margins through the cycle as reflected in this environment. Despite 38% fewer external deliveries year over year, our EPS was only down 12%, highlighting the strength and resilience of our platform. I am proud of our team for that work. Furthermore, our last 12 months adjusted return on equity was 14.2%, showing we continue efficiently deploying our capital to generate return. The current environment will benefit our lease fleet of 144,000 owned and managed railcars.
Eric: In the first quarter GAAP earnings per share for Trinity Industries were 29.
Eric: On revenues of $585 million.
Eric: Third pillar, where the breakeven on our railcars and improve the rail products group margin through the cycle is reflected in this environment.
Eric: Despite 38% fewer external deliveries year over year, our EPS was only down 12% highlighting the strength and resilience of our platform.
Eric: I am proud of our team for that work.
Furthermore, our last 12 months adjusted return on equity was 14, 2%.
Eric: <unk>, we continue efficiently deploying our capital to generate return.
Eric: The current environment will benefit our lease fleet of 144000 owned and manage railcars.
Gene Savage: Our customers need the railcars they have in their fleet, and higher costs and interest rates have been and continue to support lease rate expansion, improving our businesses overall return. The forward looking metrics for our lease fleet remains favorable, with fleet utilization at 96.8% and our future lease rate differential, or FLRD, at 17.9%.
Eric: Our customers need the railcars they had in their fleet and higher cost and interest rates have been and continue to support lease rate expansion improving our businesses overall return.
Eric: The forward looking metrics for our lease fleet remains favorable with fleet utilization at 96, 8% and our future lease rate differential rattler D at 17, 9%.
Gene Savage: In summary, we expect macroeconomic forces in 2025 to have some effect on us, whether through inflation, recession, or other economic conditions, but we also expect to continue to be opportunistic as a railcar lessor, disciplined as a railcar builder, and innovative with our customers.
Eric: In summary, we expect macroeconomic forces in 2025 to have some effect I don't know whether through inflation recession or other economic condition.
Eric: We also expect to continue to be opportunistic as a railcar lessor discipline as a railcar builder and innovating with our customers.
Gene Savage: Moving to a market update, market uncertainty in the first quarter continued to slow conversions inquiries to order. Inquiry levels at the beginning of 2025 were the highest they've been in several years. But customers are taking longer to make capital decisions. We think industrial production is the best predictor of growth for our business. And while macro sentiment and confidence are trending negatively due to market uncertainty, industrial production remains positive. Over the next several quarters, decisions by our customers for new railcar orders will allow us to manage our production lines efficiently.
Eric: Moving to our market update market uncertainty in the first quarter continued to slow conversion inquiries to orders.
Eric: Inquiry levels at the beginning of 2025 were the highest they've been in several years.
Eric: The customers are taking longer to make capital decisions.
Eric: We think industrial production is the best predictor of growth for our business and while macro sentiment and confidence are trending negatively due to market uncertainty industrial production remains positive.
Over the next several quarters decisions by our customers for new railcar orders will allow us to manage our production lines efficiently.
Gene Savage: Our current expectations for industry railcar deliveries this year are 28,000 to 33,000 railcars. While we cannot control the volatility in the current market, as an organization, we are focused on making prudent decisions to support the long-term investment in our fleet and growth of our business. Currently, we expect minimal direct cost pressures from current policy proposals. However, we have seen an impact to demand and, subsequently, revenue.
Eric: Our current expectations for railcar deliveries. This year are 28000 to 33000 railcars.
Eric: While we cannot control the volatility in the current market as an organization. We are focused on making prudent decisions to support the long term investment in our fleet and growth of our business.
Eric: Currently we expect minimal direct cost pressures from current policy proposal.
Eric: However, we have seen an impact to demand and subsequently revenue.
Gene Savage: Based on industry data, we saw the North American rail car fleet contract for the first time in about two years. This is further evidence that builders and lessors are remaining disciplined, limiting speculative purchases, and responding to replacement needs. We did see attrition outpaced deliveries in Q1 and we would expect that to continue as long as customers delay buying decisions. Railcar activity stepped up in March with less than 19% of the fleet in storage. The relatively low level of railcars in storage is consistent with the healthy utilization and renewal rate increases we have sustained.
Eric: Based on industry data, we saw the North American railcar fleet contract for the first time in about two years.
Eric: This is further evidence that the lessors are remaining disciplined.
Eric: Limiting speculative purchases and responding to replacement needs.
Eric: We did see attrition outpaced deliveries in Q1, and we would expect that to continue as long as customers delayed buying decisions.
Eric: Railcar activity stepped up in March with less than 19% of the fleet in storage.
Eric: The relatively low level of railcars and storage is consistent with a healthy utilization and renewal rate increases we have sustained.
Gene Savage: I would now like to provide some segment highlights for the quarter, beginning with the rail car leasing and services segment, which includes our leasing, maintenance, and digital and logistics services businesses. As noted at the top of the call, our leasing business continues to perform at or above our expectations. Our FLRD has been double digit positive for 12 quarters, and in that time we have repriced about 58% of our fleet. In the first quarter, renewal lease rates were 29.5% above expiring rates, and fleet utilization remained favorable at nearly 97%, with a renewal success rate of 75%, demonstrating that customers are holding onto their existing equipment, and we continue to renew leases upward to market rates.
Eric: I would now like to provide some segment highlights for the quarter, beginning with our railcar leasing and services segment, which includes our leasing.
Eric: <unk> and digital one logistics services businesses.
Eric: As noted at the top of the call our leasing business continues to perform at or above our expectations.
Eric: Our SLR D has been double digit positive for 12 quarters and in that time, we have repriced about 58% of our fleet.
Eric: In the first quarter renewal lease rates were $29, 5% above expiring rates and fleet utilization remained favorable and nearly 97% with our renewal success rate of 75% Derma.
Eric: Demonstrating that customers are holding onto their existing equipment.
Eric: And we continue to renew leases upward to market rates.
Gene Savage: We expect these positive trends to continue as lower rail car deliveries this year continues driving tightness in the market. Looking at the first quarter results, revenues were flat year over year as higher lease rates were partially offset by a lower volume of external repairs. Furthermore, weather impacted our first quarter results for the maintenance business with lost weeks in January and February. We are also in a heavy tank car compliance year, which increases maintenance costs to our fleet. In summary, leasing segment operating margin was up year over year due to higher lease rates and higher gains on lease portfolio sales, partially offset by lower volume of external repairs in our maintenance services business.
Eric: We expect these positive trends to continue as lower railcar deliveries. This year continues driving tightness in the market.
Eric: Looking at the first quarter result revenues were flat year over year as higher lease rates were partially offset by a lower volume of external repair.
Furthermore, weather impacted our first quarter results for the maintenance business with last week in January and February.
Eric: We are also in a heavy tank car compliance here, which increases maintenance maintenance cost to our fleet.
Eric: In summary, leasing segment operating margin was up year over year due to higher lease rates and higher gains on lease portfolio sale, partially offset by a lower volume of external repairs in our maintenance services business.
Gene Savage: In the quarter, we completed $34 million of lease portfolio sales and achieved gains of $6 million. Our quarterly net lease fleet investment was $87 million in line with our full year guidance. The hard assets of our leasing business provide stable returns, which makes for a compelling investment thesis in an uncertain market.
Eric: In the quarter, we completed $34 million of lease portfolio sale and achieve gains of $6 million.
Eric: Our quarterly net lease fleet investment was $87 million in line with our full year guidance.
Eric: The hard assets of our leasing business provides stable returns, which makes for a compelling investment thesis in an uncertain market.
Gene Savage: Moving to rail products group, which includes our rail car manufacturing and our rail car parts businesses. Our results in this segment reflect the current operating environment. We delivered 3,060 new railcars in the quarter and received orders for 695 railcars, evidence of the delayed investment decisions I have previously acknowledged and the lumpiness of orders quarter to quarter. As a result, quarterly revenue was down due to lower delivery. Operating margin of 6.2% is down both sequentially and year over year. This margin includes costs associated with workforce rationalization. Our backlog at the end of the quarter was $1.9 billion and we have seen order activity improve in the second quarter.
Eric: Moving to rail products group, which includes our railcar manufacturing and our railcar parts businesses. Our results in this segment reflect the current operating environment.
Eric: We delivered 3060, new railcars in the quarter and received orders for 695 railcars.
Eric: Evidence of the delayed investment decisions I have previously knowledge and the lumpiness of orders quarter to quarter.
Eric: As a result quarterly revenue was down due to lower delivery.
Eric: Operating margin of six 2% is down both sequentially and year over year.
Eric: This margin includes costs associated with workforce rationalization.
Eric: Our backlog at the end of the quarter was $1 $9 billion and we have seen order activity improved in the second quarter.
Gene Savage: In a minute, Eric will provide updated guidance for the full year, but I wanted to acknowledge our guidance assumes that some of the inquiries we are seeing begin to convert to orders in the next few months, which will allow us to efficiently run our production line. We believe in the power of our leasing business and in the competitive and economic advantages our manufacturing and services businesses give to our lease fleet. Although short-term volatility is outside our control, we are focused on making decisions that support the generation of long-term economic value.
In a minute Eric will provide updated guidance for the full year, but I wanted to acknowledge our guidance assumes that the inquiry, we're seeing begin to convert to orders in the next few months, which will allow us to efficiently run our production line.
Eric: We believe in the power of our leasing business and then the competitive and economic advantages, our manufacturing and services businesses into our lease fleet.
Eric: Although short term volatility is outside our control we are focused on making decisions that support the generation of long term economic value.
Eric Marchetto: I'll now turn the call over to Eric to talk through financial results, as well as our updated guidance for 2025. Thank you, Gene, and good morning, everyone. I will begin by discussing our first quarter financial statements, starting with the income statement. In the first quarter, we generated revenues of $585 million, reflecting lower external delivery. Furthermore, 29% of our rail products for revenues were eliminated as it went into our internal lease fleet. Our GAAP EPS from Continuing Operations was $0.29 in the quarter. We benefit in the quarter from lower corporate interest and tax expenses. Moving to the Cash Flow Statement, our quarterly cash from contingent operations was $78 million, and our net gains on lease portfolio sales were $6 million in the quarter.
Eric: I'll now turn the call over to Eric to talk through financial results as well as our updated guidance for 2025.
Eric: Thank you gene and good morning, everyone.
Eric: Oh, just begin by discussing our first quarter financial statements starting with the income statement.
Eric: In the first quarter, we generated revenues of $585 million.
Eric: The lower external deliveries.
Eric: Furthermore, 29% of our rail products group revenues were eliminated.
Eric: Into our lead internal lease fleet.
Eric: Our GAAP EPS from continuing operations was 29 in the quarter.
Eric: We benefited in the quarter from lower corporate interest and tax expenses.
Eric: Moving to the cash flow statement, our quarterly cash from continuing operations was $78 million.
Eric: And our net gains on lease portfolio sales were $6 million in the quarter.
Eric Marchetto: We invested $9 million in operating and administrative capital expenditures. We returned $33 million to shareholders in the quarter. $25 million through our quarterly dividend and $8 million in share repurchase. Our balance sheet is positioned for value creation and provides flexibility in an uncertain market. We have $920 million in liquidity through our cash, revolver, and warehouse availability. Our loan to value of 66.2% on our wholly owned fleet is within our target range of 60 to 70%.
Eric: We invested $9 million.
Eric: Operating and administrative capital expenditures.
Eric: We returned $33 million to shareholders in the quarter.
Eric: $25 million through our quarterly dividend and $8 million in share repurchases.
Eric: Our balance sheet is positioned for value creation and provides flexibility in an uncertain market.
Eric: We have $920 million of liquidity through our cash revolver and warehouse availability.
Eric: Our loan to value of 66, 2% on a wholly owned fleet.
Eric: In our target range of 60% to 70%.
Eric Marchetto: Now I want to talk about the expectations for the rest of 2025. As Gene noted, there is uncertainty in the market. We know the demand for railcars is out there given the aging profile of the fleet and solid inquiries we continue to receive from our customers. The pace at which these inquiries are converted to orders is slower than expected. We are lowering our full year industry delivery guidance to approximately 28,000 to 33,000 railcars. Our full year guidance assumes additional orders are received for delivery this year. Based on what is currently in our backlog and being manufactured, we expect the second quarter to be a low point for the year, but expect production, deliveries, and subsequently earnings to pick up as we move into the back half of the year.
Eric: Now I want to talk about the expectations for the rest of 2025.
Speaker Change: As gene noted there is uncertainty in the market.
Speaker Change: We know the demand for railcars out there given the aging profile of the fleet and solid inquiries, we continue to receive from our customers.
Speaker Change: The pace at which these inquiries are converting to orders is slower than expected.
Speaker Change: We are lowering our full year industry delivery guidance to approximately 28000 to 33000 railcars.
Speaker Change: Our full year guidance assumes additional orders are received for delivery this year.
Speaker Change: Based on what is currently in our backlog and being manufactured we expect the second quarter to be a low point for the year, we expect production deliveries and subsequently earnings to pick up as we move into the back half of the year.
Eric Marchetto: Real products group margins will be impacted by lower volumes and margin compression a new order. Our current view is segment operating margin will be between 5% and 6% for the year. We are leaving our capital expenditure guidance for the year unchanged. $45 million to $55 million for operating and administrative cap. and $300 million to $400 million for Net Fleet Investments. Net fleet investment guidance assumes a pickup in demand in the near term. The operating performance and cash flow generation of LeaseFleet remains strong. We see opportunities for lease fleet investments and expect continued strength in our fleet utilization.
Speaker Change: Rail products group margins will be impacted by lower volumes and margin compression on new orders.
Speaker Change: Our current view is segment operating margin will be between 5% and 6% for the year.
Speaker Change: We are leaving our capital expenditure guidance for the year unchanged $45 million to $55 million for operating and administrative Kevin.
Speaker Change: And $300 million of 400 million for net fleet investment.
Speaker Change: Net fleet investment guidance assumes a pickup in demand in the near term.
Speaker Change: The operating performance and cash flow generation of lease fleet remains strong.
Speaker Change: We see opportunities for lease fleet investments.
Speaker Change: And expect continued strength in our fleet utilization.
Eric Marchetto: Lease rates are driven by many factors, but the most important is a balanced lease, meaning there is not an excess of supply. This allows for rational and higher lease rates. In the current environment, the North American rail car fleet is in balance, evidenced by fleet utilization, rising lease rates, and renewal success rates. Furthermore, general inflationary pressure will drive new railcar prices upward, which will allow less sores to raise lease rates.
Speaker Change: Lease rates are driven by many factors, but the most important is a balanced fleet.
Speaker Change: There is not an excess of supply.
Speaker Change: This allows for rational and higher lease rates and.
Speaker Change: In the current environment, the North American railcar fleet is imbalance evidenced by fleet utilization rising lease rates and renewal success rates.
Speaker Change: Furthermore, general inflationary pressure will drive new railcar prices upward, which will allow lessors to raise lease rates.
Eric Marchetto: And finally, we're refining our full year EPS guidance to a range of $1.40 to $1.60 per share. Our lease fleet continues to perform favorably, and our customers are holding on to their existing fleets as they continue to need the railcars in their fleets. This provides a predictable baseload of cash flow and earnings. The long-term fundamentals of our franchise remain intact. Our platform has the ability to generate significant cash and above-average shareholder returns based on the strength of the hard assets in our lease fleet and a value proposition to our customers that is unmatched.
Speaker Change: And finally, we are refining our full year EPS guidance to a range of $1 40 to $1 60 per share.
Speaker Change: Our lease fleet continues to perform favorably and our customers are holding on their existing fleets as they continue to need the railcars in their fleets.
Speaker Change: This provides predictable baseload of cash flow and earnings.
Speaker Change: The long term fundamentals of our franchise remain intact.
Speaker Change: Platform has the ability to generate significant cash and above average shareholder returns based on the strength of the hard assets in our lease fleet.
Our value proposition to our customers that is unmatched.
Operator: Operator, we are now ready to take our first question. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keypad. To withdraw your question, please press star then two.
Speaker Change: Operator, we're now ready to take our first question.
Speaker Change: Thank you we will now begin the question and answer session to ask a quick question on My Press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two at this time of war pause momentarily to assemble roster.
Operator: At this time, we will pause momentarily to assemble our roll call.
Speaker Change: Okay.
Bascome Majors: The first question is from Bascome Majors with Suske Hanna. Please go ahead. Thanks for taking my questions. The FLRD measure is still quite high but has come down from I think you were at 24 last quarter and a few points higher than that, the quarters before that.
Speaker Change: The first question.
Speaker Change: Tom Bascom Roger with Susquehanna. Please go ahead.
Speaker Change: Thanks for taking my questions.
Speaker Change: The F. L. Rd measure is still quite high but has come down from I think you were at 24 last quarter and a few points higher than that in the quarters before that could you help us bridge between whats happening in the expiring lease rate comps as we move forward to make that fall in what's happening in the sequential.
Gene Savage: Could you help us bridge between what's happening in the expiring lease rate comps as we move forward to make that fall and what's happening in the sequential sort of spot lease rate? And then on that second question, if there's any delineation between what you're seeing in tank and freight, that would be helpful as well. Thank you. Sure. Thanks, Bascom. Great question. As we look at the FLRD, it's really affected by the mix of car types coming up for a renewal in the timeframe, but still overall very positive. As we mentioned in the prepared remarks, the renewal rate versus expiring rate in the quarter was twenty nine and a half percent.
Speaker Change: Sure sort of spot lease rate and then second question, if there's any delineation between what youre seeing in tank and freight that would be helpful. As well. Thank you.
Speaker Change: Sure. Thanks for asking a great question as we look at the SLR D. It's really affected by the mix of car types coming up for renewal and the timeframe, but still overall very positive as we mentioned in the prepared remarks, the renewal rate versus expiring late in the quarter was.
Speaker Change: 29, 5%.
Gene Savage: If we look at our average lease rate, it's up both sequentially, quarter over quarter, and year over year, so still very positive, especially with forty two percent of our fleet yet to be renewed in the higher lease rate environment. So we're feeling good about that. Again, it can vary quarter to quarter, more on the mix of car types coming up during that twelve month period.
Speaker Change: If we look at our average lease rate, it's up sequentially quarter over quarter and a year over year, so still very positive, especially with 42% of our yet to be renewed in a higher trade environment. So we're feeling good about that.
Speaker Change: Again, it can vary quarter to quarter and more on the mix of car types coming up during that 12 month period.
Gene Savage: And just to clarify, you know, 29.5%, can you can you articulate how that's different than the FLRD at 18% and what's driving such a gap between two, you know, supposedly similar measures? Sure, it's going to be the car types that expired and got renewed in that quarter versus the car types that are coming up for renewal in the next 12 months. So we're giving you the rates from the quarter that happened, and the mix or the change in the cars in the next 12 months could be different. And based off the increased amount for those car types, they can change that overall number from the 29.5 to the 17.9.
Speaker Change: And just to clarify.
Speaker Change: Nine 5% can you can you articulate how thats different than the F. L already at 18% and whats driving such a gap between two yo supposedly similar measures.
Speaker Change: Sure, it's going to be the car types that expired and we need in that quarter versus the car types that are coming up for renewal in the next 12 months.
Speaker Change: So we're giving you the the rate from the quarter that happened in the mix or the change in the cars in the next 12 months could be different and based off the increase amounts for those car types. They can change that overall number from the 2009 have to the $17 nine okay.
Bascome Majors: Okay, that's helpful.
Gene Savage: And I would assume that just looking out 12 months in the FLRD would probably be more representative of the overall mix of the fleet with more time there. It's representative of the expirations in the next four quarters. It's not necessarily representative of the fleet. It's just it's it's a forward looking metric on what our expirations are weighted by revenue for the next four quarters. So that's where you get the difference. But you know, so it's a little more indicative of future changes in revenue. But when you, as Gene mentioned, the 29 and a half percent, that's, that's just what the change was for this current quarter.
Speaker Change: Okay. That's helpful and I would assume that just looking out 12 months and the F. L. R&D would probably be more representative of the overall mix of the fleet with more time there.
Speaker Change: Yeah.
Speaker Change: It's representative of the explorations in the next four quarters, it's not necessarily representative of the fleet.
Speaker Change: It is a forward looking metric on what our explorations are weighted by revenue.
Speaker Change: For the next four quarters, so thats, where you get the difference.
It's a little more indicative of future changes in revenue.
Gene: But when you as gene mentioned the 29, 5%. That's that's just what the change was for this current quarter.
Bascome Majors: That's a that's a great number, and thank you for for reconciling and clarifying that.
Speaker Change: That's a great number and thank you for for reconciling and clarify Matt just one more for me and I'll hop back in queue.
Eric Marchetto: Just one more for me, and I'll hop back in queue. You made some comments on cadence, Eric. You know, I think 2Q on both deliveries, I believe you said margin and overall earnings would probably be the weakest in your expectation. Can you walk through that in a little more detail of what's driving that cadence? And, you know, maybe bridge to sort of where you exit the year in 4Q, like, you know, why do you think there is some improvement from the 2Q trough? What do you have visibility into to drive that improvement? And ultimately. you know, anything else that gives you conviction that we kind of go down and then go up from here.
Eric: You made some comments on cadence, Eric I think <unk>.
Eric: Both deliveries I believe you said margin and overall earnings would probably be the.
Eric: The weakest and your expectation can you walk through that in a little more detail of what's driving that cadence and.
You may be bridge to sort of where you exited the year and if <unk> like.
Eric: Why do you think there is some improvement from the <unk> trough, what do you have visibility into to drive that improvement and ultimately.
Eric:
Eric: Anything else that gives you conviction that yes, when we kind of go down and then go up from here. Thank you.
Eric Marchetto: Thank Yeah, I'll start with leasing, because there's probably, you know, a lot more certainty around that. When you look at the leasing performance, as Gene mentioned, with both the FLRD and where we're currently renewing railcars, we expect... Revenue to continue to increase there through our renewals and also through our fleet growth. And so the leasing revenue should continue to improve along with the leasing margins. And then when you look at gains on car sales, those are back and weighted for the year in terms of the gains. If we got it to the 40 to. $50M, we had relatively low gains this quarter.
Speaker Change: Yes, I'll start with leasing.
Speaker Change: You know a lot more certainty around that when you look at the leasing performance as gene mentioned with both the.
Speaker Change: <unk>.
Srd were where were currently renewing railcars, we expect.
Speaker Change: Revenue to continue to increase there.
Speaker Change: Our renewals and also through our fleet growth.
Speaker Change: And so the leasing revenue should continue to improve longer deletion margins and then when you look at gains on car sales.
Speaker Change: Those are back end weighted for the year in terms of the gains that we guided to the $40 million to $50 million we had.
Speaker Change: Yes.
Eric Marchetto: And so those are in the back half of the year. When you look at the rail group, we talked about the deliveries here and the deliveries that we're expecting with, we expect the deliveries to be lower in the 2nd quarter relative to the rest of the year. So it's kind of all those things that are contributing to that. second quarter being lower and improving further out. I think there was a comment in that discussion in the prepared remarks about, you know, pricing on the rail cars and rolling them through. I don't want to pick that out of context.
Speaker Change: Relatively low gains this quarter and so those are in the back half of the year when you look at it.
Speaker Change: The rail group.
Speaker Change: <unk> talked about the deliveries here and the deliveries that we're expecting with the.
Speaker Change: We expect deliveries to be lower in the second quarter relative to the rest of the year. So it's kind of all those things.
Speaker Change: That are contributing to that.
Speaker Change: Second quarter, being lower and improve and further out.
Speaker Change: I think there was a comment in that discussion in the prepared remarks about.
Speaker Change: Pricing on the railcars and rolling them through I don't want to pick that out of context can you expand on that a little bit and then I'll pass it down the queue. Thank you.
Eric Marchetto: Can you expand on that a little bit? And then I'll pass it down. Yeah, so I'll go ahead and take that one, Bascom. When you look at the pricing on the new rail cars, we expect input costs, so the material cost, some of the rates you need to finance those cars to remain higher. And those are all good for us on the overall price of that car, where there is some competition on the lower volumes that we're projecting for industry deliveries. You see some of the margin compression from the pricing between competitors out there. So we've seen that come into play and that's affecting mainly volume, but then pricing compression for competition.
Speaker Change: Yeah. So I'll go ahead and take that one basket when you look at the pricing on the new railcars.
Speaker Change: We expect input cost so the material cost.
Speaker Change: Some of the rates you need to finance those cars to remain higher and those are all good for us on the overall price of that car.
Speaker Change: There is some competition on the lower volumes that we're projecting for industry deliveries.
Speaker Change: You see some of the margin compression from the pricing between competitors out there. So we've seen that come into play and that's affecting mainly volume, but then pricing compression from our competition.
Eric Marchetto: Thank you both. Thank you.
Speaker Change: Thank you both.
Speaker Change: Thank you.
Andrzej Tomczyk: The next question is from Andrzej Tomczyk of Goldman Sachs, please go ahead. Hey, good morning. Thanks for taking my questions. I just wanted to start with the point that you mentioned earlier, guidance assumes some of the inquiries turning to orders in the next few months. Can you just talk about how customer conversations have sort of developed through the quarter and here into April and what's leading you to believe the inquiries will turn to orders? Thank you.
Speaker Change: The next question is from Andre Tom check of Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, Thanks for taking my questions I just wanted to start with the point that you mentioned earlier guidance assumes some of the inquiries turning to orders in the next few months can you just talk about how customer conversations have sort of developed through the quarter and here into April and what's leading you to believes the inquiries will turn into orders.
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Gene Savage: Well, great question. As we look at what's going on in this quarter, you know, we mentioned that inquiry levels were the highest we've seen in the last couple of years, and we are currently finalizing several orders that are approximately a hundred million dollars, so we're starting to see some of that convert more. I guess the other thing I would say there is that as you look at it, the brunt of the delay is more in freight than tank cars. Got it.
Speaker Change: Thank you well great question as we look at what's going on in this quarter. We mentioned that inquiry levels were the highest we've seen in the last couple of years.
Speaker Change: And we are currently finalizing several orders.
Speaker Change: That are approximately $100 million. So we're starting to see some of that convert more.
Speaker Change: I guess the other thing I would say there is that as you look at it the brunt of the.
Speaker Change: The delay is more in freight and tank cars.
Speaker Change: Got it.
Gene Savage: Okay, and maybe when just when we think about sort of orders versus deliveries, when can we expect orders to outpace deliveries? Would it be safe to say that that might not occur until 2026? Or could we see an inflection still this year? So when you're looking at that, I don't know that we can give you the exact answer the When you're looking at this year, the macro uncertainty has the volumes down. If you go to the midpoint, basically of our guidance for industry deliveries, about 30%. But it's still a supply led recovery. And the fleet is very tight.
Speaker Change: Okay, and maybe one just when we think about sort of orders versus deliveries. When can we expect orders to outpace deliveries would it be safe to say that that might not occur until 2026 or could we see an inflection still this year.
Speaker Change: So when youre looking at that.
Speaker Change: I don't know that we can give you the exact answer.
Speaker Change: When youre looking at this year the macro uncertainty has the volumes down if you go to the midpoint basically of our guidance for industry deliveries about 30%.
Speaker Change: Still a supply led recovery and the fleet is very tight in the first quarter, we saw that even get tighter with cars that were scrapped or removed from service being.
Gene Savage: In the first quarter, we saw that even get tighter with cars that were scrapped or removed from service being higher than what was added back in. So we're confident that it's got to come back that they need those cars. But that gives us strength in our main business, which is leasing. So the lease fleet utilization remains high, our lease rates remain high. So overall, we think the setup there is good while we wait for the overall new car orders to come through.
Speaker Change: Being higher than what was added back in.
Speaker Change: So we're confident that it's got to come back that they need those cars, but that gives us strength in our main business, which is leasing so the lease fleet utilization remains high our lease rates remain high. So overall, we think the setup. There is good while we wait for the overall new car orders to come.
Speaker Change: True.
Eric Marchetto: Okay, and maybe just to clarify, do I have it right that I think 17% of the deliveries went to internal fleet in the first quarter, if I just take your own leasing fleet change quarter over quarter, just seeing if that's correct? And then, do you still expect the 25 to 30% of the full year deliveries to go to the internal fleet this year, implying sort of the larger internal deliveries and eliminations for the remainder of this year relative to the first quarter? Andre, we may have to talk later, but eliminations for the first quarter are right around 27%, 29%, sorry, 29%.
Speaker Change: Okay and.
Speaker Change: Maybe just to clarify do I have it right.
Speaker Change: I think 17% of deliveries went to internal fleet in the first quarter. If I just take your own leasing fleet change quarter over quarter.
Speaker Change: Just seeing if that's correct and then do you still expect the 25% to 30% of the full year deliveries to go to the internal fleet. This year, implying sort of a larger internal deliveries and eliminations for the remainder of this year relative to the first quarter.
Speaker Change: Andre will talk later, but eliminations for the first quarter were right around 27%. Good morning, guys I'm sorry, 29%.
Eric Marchetto: And for the year, we're expecting them to be over 30%. of Eliminations. So I think We'll have to go back and look. That really hasn't changed. Got it, so the delivery is to the internal fleet. In the first quarter, we're closer to like a thousand, if that's correct. Yeah, more or less. Got it. Okay. Makes sense. That does clarify that.
Speaker Change: And then for the year, we are expecting them to be.
Speaker Change: Over 30%.
Speaker Change: Of eliminations, so I think.
Speaker Change: We'll have to go back and look that really hasnt changed.
Speaker Change: Got it so the deliveries to the internal fleet in the first quarter were closer to like 1000, Yes, that's correct.
Speaker Change: Yes, more or less got it okay makes sense.
Speaker Change: That does clarify that.
Eric Marchetto: So how do we think of, I guess, total deliveries sequentially through the year relative to the $3,100 that you did in the first quarter? I know you said it's going to, I think, step down potentially into the second quarter and then sequentially improve from there. Do I have that right? You know, Andrzej, we gave you a little bit on second quarter to try to help you understand what we saw happening short term there. But we don't give quarterly guidance. We expect to be within our normal range 30 to 40%, just like we were deliveries in the first quarter for the year.
Speaker Change: So how do we think of I guess total deliveries sequentially through the year relative to the 3100 that you did in the first quarter. I know you said, it's going to I think step down potentially into the second quarter and then sequentially improving from there is that I have that right.
Speaker Change: You know Andre we gave you a little bit on second quarter to try to help you understand what we saw happening short term there, but we don't give quarterly guidance.
Speaker Change: We expect to be within our normal range, 30% to 40% just likely where deliveries in the first quarter for.
Eric Marchetto: And so I would use that as a basis. Okay, it makes sense.
Speaker Change: For the year.
Speaker Change: So I would just add as a basis.
Speaker Change: Okay. It makes sense and then one more question just on the manufacturing side is the industry deliveries were closer to.
Eric Marchetto: And then one more question just on the manufacturing side. If the industry deliveries were closer to down, you know, to $28,000 this year, down 34% versus 2024 for the industry, how should we think about margins for Trinity in that scenario? Should that be closer to the 5% level? And then conversely, if industry deliveries were at the higher end, we'd be closer to the 6%. Just trying to think about the margins this year. Yeah, the volume is the biggest driver in the change in the operating margin that you're going to see. So I would say what you're saying makes sense and is reasonable.
Speaker Change: To down.
28000, this year are down 34% versus 2024 for the industry, how should we think about margins for.
Speaker Change: For Trinity in that scenario should that be closer to the 5% level and then Conversely, if this industry deliveries were at the higher end, we'd be closer to the 6% I'm.
Speaker Change: Just trying to think about the margins this year.
Speaker Change: Yes.
Speaker Change: The biggest driver in the change in the operating margin that youre going to see so I would say, what you're saying makes sense and is reasonable.
Eric Marchetto: Okay, thanks. And then last for me was just, any more share repurchases to think about this year, just to think opportunistically there? You know, that share repurchases, we did buy back some shares in the first quarter, and we still have our authorization to outstanding. You know, we said we're going to be opportunistic around share repurchases, and so we're going to be opportunistic. Appreciate the time, everybody. Thank you.
Speaker Change: Okay. Thanks, and then last from me was just.
Speaker Change: Any more share repurchases to think about this year just to think opportunistically there.
Speaker Change: Share repurchases, we did buyback some shares in the first quarter.
Speaker Change: We still have our authorization to outstanding.
Speaker Change:
Speaker Change: We said, we're going to be opportunistic around share repurchases.
Speaker Change: And so we're going to be opportunistic.
Speaker Change: Got it I appreciate the time everybody. Thank you. Thank you.
Bascome Majors: The next question is a follow-up from Bascome Majors with Suske Anna. Please go ahead. Hey Eric, you talked a little bit about the term loan and the refinancing of the ABS. Can you just talk a little bit about what you're seeing in, having recently gone to the credit market, why you chose to go with the term loan instead of an ABS structure and any impact to either, you know, that you want to call on the balance sheet or interest expense from that refi going forward. Thank you. Yep, thanks, Bascom. Yeah, you're noting that we did close a $1.1 billion bank term financing yesterday.
Speaker Change: The next question is a follow up from Boscombe majors with Susquehanna. Please go ahead.
Speaker Change: Okay.
Speaker Change: Eric you talked a little bit about the the term loan and the refinancing of the ABS can you just talk a little bit about what youre seeing and have been recently gone into credit market. Why you chose to go with the term loan instead of an ABS structure.
Speaker Change: And any impact to either if you want to call on the balance sheet, our interest expense from that refi going forward. Thank you.
Speaker Change: Yes, thanks for asking.
Speaker Change: Youre, noting that we did.
Speaker Change: Those are $1 $1 billion.
Speaker Change: Bank term financing yesterday.
Eric Marchetto: That was, we had a term loan that was maturing later in the year. So we refinanced that. So that was one of the reasons why we stayed with the bank term market is we were, that was the capital that we were repaying. And we were able to merge that with another bank term loan that we had and combine it and upsize it. So we really are happy with the execution. The spreads were, in my opinion, attractive. The ABS market is still an attractive market for us. And so we'll, you know, in the future, I'm sure we'll be accessing the ABS market as well.
Speaker Change: That was we had a.
Speaker Change: The term loan that was maturing later in the year so.
Speaker Change: Refinance that so that was one of the reasons why we stayed with the bank term market as we work that was the capital that we were repaid and we were able to merge that with another bank term loan that we had.
Speaker Change: And combine it and upsize. It so we really are happy with the execution.
Speaker Change: Breads were in.
Speaker Change: In my opinion attractive.
Speaker Change: The ABS market is still an attractive market for us.
Speaker Change: And so you know in the future I'm sure will be accessing the ABS market as well, but we're really took advantage of the bank's appetite for funded loans.
Eric Marchetto: But we really took advantage of the bank's appetite for funded loans. And so we think we got really good execution. Any impact on that interest short term? You know, the rates are, the spread is lower. So that's good. But you're increasing the leverage a little bit.
Speaker Change: And so we think we've got really good execution there.
Speaker Change: Yeah.
Speaker Change: Any impact on net interest short term.
Speaker Change: The rates or the spread is lower so thats.
Speaker Change: Good, but youre, increasing the leverage a little bit so.
Eric Marchetto: So, you know, the, the effect is, there'll be a little bit more debt, but I think nothing, nothing material changing from our, from our trend line. Thank you. Yep.
Speaker Change: Sure.
Speaker Change: The effect is there'll be a little bit more debt, but I think nothing nothing material changing the mark from our trend one.
Speaker Change: Thank you.
Speaker Change: Yes.
Gene Savage: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jean Savage, Chief Executive Officer unprecedented for any closing remarks.
Gene Savage: I would like to turn the conference back over to Jim Savage, Chief Executive Officer and President for any closing remarks. Well, thank you for joining us today. And as we stated today, although customers are taking longer to make order decisions, which will impact our short term performance, we remain confident in the long term fundamentals of the business. Our platform is unparalleled and we have implemented necessary changes to our business to ensure we can generate strong returns through the cycle. We look forward to sharing our progress with you next quarter.
Speaker Change: Well, thank you for joining us today and as we stated today, although customers are taking longer to make order decisions, which will impact our short term performance. We remain confident in the long term fundamentals of the business.
Speaker Change: Our platform is unparalleled and we have implemented necessary changes to our business to ensure we can generate strong returns through the cycle.
Speaker Change: We look forward to sharing our progress with you next quarter.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].