The Greenbrier Companies, Inc., reported financial results for its third fiscal quarter ended May 31, 2016 that indicate continued strong performance, despite a railcar market that has softened in recent months.
Net earnings attributable to Greenbrier for the quarter were $35.4 million, or $1.12 per diluted share, on revenue of $612.9 million. Adjusted EBITDA for the quarter was $99.5 million, or 16.2% of revenue. Net debt was reduced by more than $21 million during the quarter, to less than $100 million on total assets of $1.8 billion. Net debt to LTM EBITDA maintained at 0.2x.
The new railcar backlog as of May 31, 2016 was 31,200 units with an estimated value of $3.6 billion (average unit sale price of $116,000), compared to 34,100 units with an estimated value of $4.0 billion (average unit sale price of $116,000) as of February 29, 2016. Diversified orders for 1,700 new railcars were received during the quarter, valued at $150 million, or an average price of approximately $91,000 per railcar. New railcar deliveries totaled 4,300 units for the quarter, compared to 4,500 units for the quarter ended February 29, 2016.
Greenbrier declared a 5% increase in the quarterly dividend to $0.21 per share payable on August 10, 2016 to shareholders of record as of July 20, 2016.
“Third quarter aggregate gross margin, excluding syndication activity from a railcar portfolio acquired in our first quarter, was 22.5%, consistent with our goal of at least 20% gross margin by the second half of fiscal 2016,” the company said. “We continue to be pleased with the portfolio syndication returns; however, the margin percentage on this activity had a dilutive impact, resulting in aggregate gross margin of 20.7%. Third quarter annualized ROIC (return on invested capital) of 28.9% continues ROIC performance above 25% for the third consecutive quarter. We expect to maintain or exceed our 25% ROIC target for fiscal 2016.”
“We posted strong operational and financial results in the quarter, particularly in light of growing industry headwinds,” said Chairman and CEO William A. Furman. “Profitability was solid with aggregate gross margin at 20.7%. I am proud of our results so far this year and pleased that we expect to achieve full year results within our range of expectations. This is a testament to the dedication of our employees and strength of our integrated business model.
“As North American rail markets adjust to lower railcar loadings and increased rail velocity, we will focus on this core business while growing our earnings base in select international markets where long-term demand for railcars is strong. We achieved an important international milestone by beginning production of 1,200 tank cars for Saudi Railway Company’s October 2015 order. I am also pleased about the recently announced extension of our partnership in Brazil and strongly believe that global markets will be a key driver of future growth.
“Greenbrier’s backlog remains strong, with non-energy related railcars representing more than 80% of our total backlog. The North American energy sector is contending with a surplus of railcars. We continue to engage with our customers to identify solutions for the 5,000 frac sand cars in our backlog impacted by this over-supply issue.
“Greenbrier is a strong and diverse company. Our flexibility and creativity allow us to meet challenging market conditions, and we are well-prepared for markets characterized by lower total railcar deliveries. We are proud of our lower cost, flexible manufacturing capacity, diversified product and customer mix, strong balance sheet and backlog. Greenbrier’s strategic transformation has positioned us to execute on future opportunities, which we believe will lead to continued growth and, ultimately, best position the company to increase shareholder value.”
Based on current business trends and production schedules for fiscal 2016, Greenbrier has provided guidance, expecting new railcar deliveries to be approximately 20,000, 21,000 units, with revenue of approximately $2.8 billion and Diluted EPS in the range of $5.70 to $5.90.
“Greenbrier reported an all-around beat and lowered the high end of its guidance modestly in a continued tough environment,” said Cowen and Company analyst Matt Elkott. “Further downside to current expectations is limited from this point, in our opinion, but the timing of a material improvement may be hard to pinpoint. We maintain our long-term favorable view.”
“The high end of GBX's new FY16 EPS guidance is still above the consensus estimate,” said Elkott. “Additionally, the guidance is essentially for 4Q16, and in this highly lumpy industry, we caution that any one quarter does not usually provide a good reflection of fundamentals in either direction. That said, the implied 4Q16 EPS guidance was not as bad as the 9% decline in the shares on Wednesday would suggest—the high end of the implied 4Q16 guidance was largely in line with the consensus estimate. On the frac sand car front, we do not believe that the uncertain destiny of those 5,000 cars should have surprised anyone. The company had previously disclosed it had around 16% energy exposure in its backlog, and with a glut of energy equipment on the market, the uncertainty around the cars should not have come as a big surprise. That said, we believe at least half the 5,000 cars should get converted or see another positive resolution, with the other half, or 8% of the backlog, at a higher risk of long-term deferment.
“GBX reported fiscal 3Q16 EPS of $1.12, compared to our and consensus estimates of $1.00 and $1.09, respectively, at the time of the earnings release. Adjusted EBITDA declined 14% to $99.5 million, compared to our and consensus estimates of $91.7 million and $93 million, respectively. Gross margin was 20.7%, compared to our and consensus estimates of 19.1% and 18.7%, respectively. Excluding the syndication of a railcar portfolio acquired in the first quarter, gross margin was 22.5%. Three quarters into FY16, GBX narrowed its delivery guidance to 20,000-21,000 units from 20,000-22,000 units. Revenue is now expected to be approximately $2.8 billion (Cowen and consensus $2.7 billion at the time of the earnings release). The previous guidance was for revenue to exceed $2.8 billion. EPS should be in the range of $5.70 to $5.90, compared to $5.70 to $6.10 previously. Diversified orders for 1,700 railcars were received during the quarter.
We are revising our FY16 and FY17 EPS estimates to $5.87 and $3.50, from $5.90 and $3.70, respectively. Our CY16 and CY17 EPS estimates change to $4.66 and $3.47, from $4.74 and $3.65, respectively. Our price target drops from $37 to $35 based on applying the same 10.0x PE multiple to our new CY17 EPS estimate of $3.47. We are maintaining our Outperform rating.”