The Greenbrier Companies, Inc. — FY2016 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended August 31, 2016; fourth-quarter figures are also summarized below. Greenbrier designs and manufactures railcars and marine barges, provides wheel and parts services, and owns or manages railcars. It reports Manufacturing, Wheels & Parts, Leasing & Services, and its equity-method GBW joint venture.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $2.680 billion | $2.605 billion |
| Operating earnings | $408.6 million | $386.9 million |
| Net earnings attributable to Greenbrier | $183.2 million | $192.8 million |
| Diluted EPS | $5.73 | $5.93 |
| Consolidated margin | 20.6% | 20.6% |
| Operating cash flow | $331.7 million | $192.3 million |
| Capital expenditures | $139.0 million | $106.0 million |
Revenue rose 2.8%, while attributable earnings declined 5.0%. Manufacturing revenue fell 1.9% as railcar deliveries declined 3.8%, but higher-priced product mix and improved production efficiency lifted its margin to 22.2% from 20.8%. Wheels & Parts revenue decreased 13.2% and operating profit fell 27.6%, reflecting lower volumes and scrap-metal pricing. Leasing & Services revenue increased 166.1%, primarily from sales of railcars acquired for resale; its margin rate fell to 21.9% from 57.3%. A higher share of Mexican joint-venture earnings attributable to its noncontrolling partner was the principal reason Greenbrier-attributable earnings declined.
Fourth quarter: Revenue was $595.2 million, operating earnings $83.5 million, net earnings attributable to Greenbrier $33.6 million, and diluted EPS $1.06. The comparable 2015 quarter reported revenue of $765.5 million, operating earnings of $135.5 million, attributable earnings of $66.9 million, and diluted EPS of $2.02.
Cash and cash equivalents were $222.7 million at year-end, versus $172.9 million a year earlier. Total notes payable and revolving notes were $304.0 million, down from $377.3 million; no revolving notes were outstanding at year-end. The company reported $350.4 million available under committed credit facilities and compliance with restrictive covenants. Total equity was $1.017 billion. Cash used in financing was $221.9 million, including debt repayments, joint-venture distributions, dividends, and share repurchases. The annual dividend declared was $0.81 per share.
Material changes, outlook, and risks
- New railcar backlog decreased to 27,500 units valued at an estimated $3.19 billion, from 41,300 units and $4.71 billion in 2015. About 12,000 units were scheduled for 2017 delivery. Marine backlog rose to $114 million from $52 million. Backlog is subject to changes, cancellations, and timing risk; 3,800 units were covered hoppers for energy-related sand transportation.
- Cash from operations increased substantially, supported in part by earnings and working-capital movements, while proceeds from asset sales rose to $103.7 million. The company sold 3,406 railcars from a related-party portfolio acquired for resale; it recognized $159.4 million of revenue and deferred $7.8 million on 389 cars because of continuing involvement. A further 479 cars remained to be sold or disposed of.
- Management estimated FY2017 capital expenditures of approximately $45 million for Manufacturing, $13 million for Leasing & Services and corporate, and $13 million for Wheels & Parts. It expected proceeds from leased-railcar sales to be nominal. Management stated existing funds, operating cash flow, and financing availability should cover expected near-term needs; the filing does not provide earnings or revenue guidance.
- After year-end, Greenbrier agreed to combine its European operations with Astra Rail in a venture it expects to control at approximately 75%. Consideration includes €30 million at closing and €30 million one year later; closing is subject to conditions including antitrust approval.
- Environmental exposure at the Portland Harbor Superfund site remains unquantifiable. EPA cleanup alternatives carried estimated total costs from $642 million to $10.2 billion; the agency’s preferred plan estimate was $1.1–$1.2 billion. Costs have not been allocated among potentially responsible parties, and Greenbrier said information was insufficient to estimate its potential liability.
- Other notable risks include cyclical railcar demand, contract cancellations, lower lease utilization and residual values, customer concentration (two customers represented 31% of annual revenue), steel and component supply and pricing, tank-car regulation, foreign exchange, and reliance on credit markets. The company also noted that 91.0% of its relevant owned fleet was on lease, down from 98.6% a year earlier.
Important facts for investors to verify
- Whether the smaller railcar backlog converts to deliveries and revenue on schedule, particularly orders exposed to energy-sector weakness.
- How much of Leasing & Services earnings and cash generation is repeatable after the railcar portfolio resale activity, and how lease utilization develops.
- The cause and persistence of lower Wheels & Parts volumes and margins, and whether Manufacturing profitability can hold as deliveries change.
- Developments in the Portland Harbor cleanup, including the EPA’s final remedy, allocation of costs, and any resulting company liability.
- Completion, financing, and integration of the Astra Rail transaction, along with the related €60 million payment commitment and guarantees.
- Near-term debt maturities, facility renewals, covenant headroom, and the effects of dividends, repurchases, and joint-venture funding on liquidity.