The Greenbrier Companies, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended August 31, 2018. The filing also reports unaudited fourth-quarter results. Greenbrier designs, manufactures and sells railcars and marine barges, and provides railcar repair, parts, leasing and fleet-management services.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $2.519 billion | $2.169 billion |
| Gross margin | $409.1 million; 16.2% of revenue | $421.3 million; 19.4% |
| Operating earnings | $253.0 million | $260.4 million |
| Net earnings attributable to Greenbrier | $151.8 million | $116.1 million |
| Diluted EPS | $4.68 | $3.65 |
| Cash from operating activities | $103.3 million | $285.6 million |
| Capital expenditures | $176.8 million | $86.1 million |
Fourth quarter: Revenue was $689.2 million, net earnings attributable to Greenbrier were $30.9 million, and diluted EPS was $0.94, compared with $611.4 million, $23.7 million and $0.75, respectively, in FY2017 Q4.
Segment trends: Manufacturing revenue grew 18.5% to $2.045 billion, but its margin rate declined to 15.5% from 20.4% and operating profit fell 18.4% to $240.9 million, primarily due to product mix and higher international-operation costs. Wheels, Repair & Parts revenue rose 11.0% to $347.0 million and operating profit increased 11.7% to $16.7 million. Leasing & Services revenue decreased 2.6% to $127.9 million, while operating profit rose to $88.5 million from $31.9 million, supported by higher gains on equipment sales and improved segment margin.
Liquidity, debt and operations
- Cash and cash equivalents were $530.7 million at year-end, down from $611.5 million. Operating cash flow fell substantially, principally reflecting working-capital movements, leasing-related cash flows, higher equipment-disposition gains and tax-related changes.
- Notes payable were $469.7 million gross before debt discount and issuance costs; revolving notes were $27.7 million. The balance sheet reported notes payable, net of discounts and costs, of $436.2 million. Greenbrier reported $450.1 million of aggregate availability under committed credit facilities and compliance with debt covenants at year-end.
- In September 2018, after year-end, the company renewed and expanded its North American revolving facility from $550 million to $600 million, with maturity extended to 2023. It also refinanced approximately $170 million of railcar-secured term debt with a new $225 million five-year facility.
- Railcar deliveries increased 21.0% to 19,000 units. Year-end railcar backlog was 27,400 units, valued at an estimated $2.74 billion, versus 28,600 units and $2.80 billion a year earlier; approximately 20,500 units were scheduled for delivery in 2019. Marine backlog was $61 million, compared with $42 million.
- Owned railcars totaled approximately 8,070, with 94.4% on lease and an average remaining lease term of 2.2 years. Greenbrier managed approximately 356,755 railcars for customers.
Material changes, outlook and risks
- Revenue increased 16.1%, mainly from higher manufacturing deliveries and the inclusion of Astra Rail for a full year, compared with three months in FY2017. Manufacturing cost growth exceeded revenue growth, and consolidated margin declined by 3.2 percentage points.
- Net earnings benefited from a lower effective tax rate of 14.7%, versus 27.1% in FY2017. The Tax Act produced a $33.6 million deferred-tax remeasurement benefit; certain tax effects remained provisional. Earnings also benefited from higher gains on equipment dispositions. FY2018 gains were $44.4 million, versus $9.7 million.
- On August 20, 2018, Greenbrier ended its GBW railcar-repair joint venture and took back 12 repair shops, which became part of Wheels, Repair & Parts. The company also acquired an approximately 68% stake in Turkish railcar manufacturer Rayvag; the transaction was described as immaterial.
- Management estimated FY2019 capital expenditures of approximately $75 million for Manufacturing, $15 million for Wheels, Repair & Parts and $90 million for Leasing & Services and corporate. It expected approximately $120 million in proceeds from leased-railcar sales. These are estimates, not earnings guidance.
- In October 2018, Greenbrier announced a proposed Saudi Railway Company joint venture involving a stated total investment of 1 billion Saudi Riyals (approximately $270 million), subject to due diligence and approvals.
- Significant risks include cyclical railcar demand, product-mix and margin variability, steel and specialty-component costs and supply concentration, labor availability, customer concentration, interest-rate and financing risks, lease utilization and residual values, and international trade, currency and regulatory exposure.
- Environmental exposure remains uncertain: the EPA’s Portland Harbor cleanup estimate was $1.7 billion across the site, but the filing says responsibility has not been allocated and Greenbrier could not estimate its liability or a range of potential loss. The company also disclosed Portland-site DEQ investigations and a pending Yakama Nation natural-resource-damages suit with no amount specified.
Most important facts for investors to verify
- Whether the $2.74 billion railcar backlog converts to deliveries and revenue on schedule, given possible order changes, cancellation provisions and future product-mix pricing.
- Whether Manufacturing margins recover after the FY2018 decline, and whether higher deliveries can translate into operating profit.
- The sources of the sharp decline in operating cash flow and the cash requirements of planned capital expenditures, lease-fleet investment and dividends.
- Post-year-end refinancing terms, variable-rate exposure, committed-facility availability and compliance with covenants.
- The eventual allocation and estimated Greenbrier share of Portland Harbor and onsite remediation costs, and developments in related litigation.
- The sustainability of earnings excluding the Tax Act benefit and elevated equipment-disposition gains; also verify the timing and conditions attached to the proposed Saudi joint venture.