Greenbrier Companies, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended November 30, 2022; comparative period is the three months ended November 30, 2021. Amounts are in U.S. dollars. Greenbrier manufactures railcars and marine vessels and provides maintenance, leasing, and railcar management services.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $766.5 million | $550.7 million |
| Gross margin dollars / margin rate | $69.5 million / 9.1% | $47.6 million / 8.6% |
| Operating income (loss) | $(4.8) million | $11.8 million |
| Net income (loss) attributable to Greenbrier | $(16.7) million | $10.8 million |
| Diluted earnings (loss) per share | $(0.51) | $0.32 |
| Cash from operating activities | $(255.5) million | $(196.7) million |
- Revenue rose 39.2%, primarily reflecting 21.6% more railcar deliveries. Manufacturing revenue increased 42.9%; Maintenance Services increased 18.1%; Leasing & Management Services increased 33.7%.
- Manufacturing segment operating loss was $3.4 million, versus $12.3 million of operating profit a year earlier. Maintenance Services improved to $5.5 million operating profit from a $1.1 million loss. Leasing & Management Services operating profit was $15.6 million, down from $17.2 million.
- Cash and cash equivalents were $263.3 million at quarter-end, with another $17.2 million of restricted cash. Available committed borrowing capacity was $213.4 million. Cash and restricted cash fell $278.6 million from August 31, 2022.
- Revolving notes were $290.5 million and notes payable, net, were $1,301.5 million at November 30, 2022. Combined reported balances were approximately $1.59 billion. The company reported compliance with its debt covenants.
- Quarter-end total equity was $1,417.9 million. Interest and foreign exchange expense was $19.6 million, up from $12.6 million, mainly due to higher interest rates and borrowings.
Material changes and unusual items
- A $24.2 million impairment charge was recorded for the Gunderson facility after Greenbrier decided to cease rail production there during 2023 and explore alternatives to exit marine barge production in early 2024. The impairment contributed to the operating loss. Additional exit costs, accelerated depreciation, or termination benefits may arise, but are not currently estimable.
- Consolidated margin rate increased to 9.1% from 8.6%, supported by improved Maintenance Services performance. Manufacturing margin rate declined to 6.5% from 6.8%, reflecting outsourcing costs, production issues, and higher input costs.
- Operating cash use increased year over year, driven in part by a $195.3 million increase in railcars held for syndication and working-capital needs associated with higher production and input costs.
- In January 2023, Greenbrier acquired the minority interest in GBX Leasing, making it wholly owned. The quarter-end carrying value of that noncontrolling interest was $8.3 million.
Outlook, management commentary, and risks
- Management reported strong demand and said it remained optimistic about 2023, while citing inflation, higher interest rates, supply-chain challenges, congestion, and possible recession or economic slowdown as ongoing concerns.
- Greenbrier received orders for 5,600 railcars valued at approximately $0.7 billion during the quarter. Railcar backlog was 28,300 units valued at $3.4 billion; marine backlog was approximately $56 million. Backlog is not a guarantee of future revenue and may be changed or cancelled.
- Management expects approximately $2.0 billion of railcar sales revenue to be recognized during the remaining nine months of FY2023, with the remaining contracted amount expected in 2024. This is a timing estimate based on current schedules and contracts, not overall earnings guidance.
- FY2023 capital expenditure expectations: approximately $240 million for Leasing & Management Services, $80 million for Manufacturing, and $10 million for Maintenance Services. Asset-sale proceeds are expected to be approximately $110 million. The company said available funds, operating cash, and financing are expected to cover anticipated needs for the next 12 months.
- The board declared a quarterly dividend of $0.27 per share in January 2023. The remaining share-repurchase authorization was $100 million; no shares were repurchased in the quarter. The program expiration was extended to January 31, 2025.
- Greenbrier has potential environmental exposure related to the Portland Harbor Superfund site and investigations at its Portland property. Responsibility and any potential loss are not currently estimable. The filing also identifies possible future litigation and environmental costs.
- Disclosure controls and procedures were reported ineffective because of a previously identified material weakness in internal control over financial reporting. Remediation was underway, with completion expected before the end of FY2023; it was not yet considered remediated.
Important facts for investors to verify
- Whether the Gunderson production shutdown and possible marine exit generate material additional charges or affect manufacturing capacity and backlog execution.
- Whether supply constraints, outsourcing, input costs, and production issues continue to pressure Manufacturing margins.
- Conversion of backlog into deliveries, revenue, and cash, including the treatment of railcars intended for syndication versus retention in the lease fleet.
- Cash use, debt levels, borrowing availability, covenant compliance, and sensitivity to higher rates; the filing estimates a 10% increase in variable rates would add approximately $2.1 million of annual interest expense.
- Progress in remediating the disclosed material weakness and the potential cost and outcome of Portland environmental matters.