Greenbrier Companies, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Three and nine months ended May 31, 2023. Amounts are in U.S. dollars; financial figures are in millions unless noted. Greenbrier manufactures railcars, provides railcar maintenance, and operates leasing and management services.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $1,038.1 | $793.5 | $2,926.6 | $2,027.0 |
| Margin | $128.1 | $76.3 | $314.4 | $178.7 |
| Margin as % of revenue | 12.3% | 9.6% | 10.7% | 8.8% |
| Operating earnings | $50.7 | $19.6 | $113.3 | $56.6 |
| Net earnings attributable to Greenbrier | $21.3 | $3.1 | $37.7 | $26.7 |
| Diluted earnings per share | $0.64 | $0.09 | $1.13 | $0.79 |
- Q3 revenue grew 30.8% year over year, while nine-month revenue grew 44.4%. For the nine months, railcar deliveries rose 39.2% to 18,100; management also cited higher average selling prices.
- Manufacturing drove most of the revenue increase. Q3 deliveries were 6,400, up 30.6%; nine-month Manufacturing margin improved to 7.8% from 5.5%.
- Nine-month Maintenance Services operating profit increased to $23.3 from $10.4. Leasing & Management revenue grew 25.6%, but segment operating profit declined 2.1% to $82.2, partly due to lower gains on equipment dispositions.
- Interest and foreign exchange expense rose to $22.8 in Q3 from $14.9, and to $64.0 for nine months from $39.3. Management attributed the increase primarily to higher interest rates and borrowings.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $1.2, compared with cash used of $328.4 in the prior-year period. Investing activities used $174.8; financing activities used $59.2.
- Cash and cash equivalents were $321.4 at May 31, 2023, down from $543.0 at August 31, 2022; restricted cash was $20.1. Cash and restricted cash together declined $217.6 to $341.5.
- Reported borrowings comprised $280.0 of revolving notes and $1,320.3 of notes payable, net. Committed credit availability was $344.1. Greenbrier reported compliance with its debt covenants.
- Total assets were $3,921.7 and total equity was $1,380.8. Inventory increased to $888.0 from $815.3; equipment on operating leases increased to $941.0 from $770.9.
- Gross capital expenditures were $253.9 for nine months, including $205.4 for Leasing & Management. Management expected FY2023 gross capital expenditures of approximately $280 for Leasing & Management, $90 for Manufacturing, and $15 for Maintenance Services. Asset-sale proceeds were expected to be approximately $76 for FY2023.
Material changes, outlook and risks
- Management said market demand remained strong, while supply-chain challenges, inflation, rising interest rates, rail-service congestion, and labor shortages continued to affect operations. Backlog was 23,400 railcars valued at approximately $2.9 billion as of May 31, 2023, with deliveries extending into calendar 2024. Backlog included $770 million of railcars intended for syndication and is not necessarily indicative of future results.
- Greenbrier recorded $40.6 of Gunderson-related charges over nine months: a $24.2 impairment, a $14.3 loss on the May sale of Gunderson Marine and the Portland Property, and $2.1 of severance. Rail production at the facility ceased in May 2023.
- On June 16, 2023, after quarter-end, Greenbrier increased the GBX Leasing warehouse facility commitment from $350 to $550 million, with proceeds intended to fund additions to its owned lease fleet. Management expected available funds, operating cash flow, and financing to cover anticipated needs for the next 12 months.
- The company declared a $0.30-per-share quarterly dividend on June 27, 2023. It repurchased 1.7 million shares for $49.4 during the nine months and had $53.9 remaining under its repurchase authorization at May 31, 2023.
- Environmental exposure remains unresolved at the Portland Harbor Superfund site. Greenbrier stated that it cannot determine its potential liability or estimate a loss range; the company sold the Portland Property but may remain liable for historical matters. The EPA’s estimated cleanup cost for the broader site is $1.7 billion, not an estimate of Greenbrier’s share.
- Other disclosed risks include railcar demand cyclicality, customer concentration, input-cost and labor pressures, foreign exchange and interest-rate exposure, and the ability to lease and remarket railcars at acceptable rates and residual values. The filing gives no specific earnings or revenue guidance.
- Management said the prior-year material weakness in IT system change-management controls had been remediated and controls tested effective in Q3. A new financial reporting system was being implemented in stages.
Important facts for investors to verify
- Whether higher delivery volumes, selling prices, and manufacturing efficiencies continue to support margins despite input costs and outsourcing needs.
- How backlog converts to deliveries, revenue, and cash, including the timing and economics of the syndication-intended railcars.
- Liquidity and financing costs as the company invests in its lease fleet, and the impact of floating-rate debt and facility maturities.
- Final costs and any continuing obligations related to the Gunderson closure and sale, and the outcome of Portland Harbor environmental proceedings.
- Whether projected FY2023 capital spending and asset-sale proceeds align with actual cash flow and fleet expansion.