Greenbrier Companies, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended November 30, 2021, compared with the three months ended November 30, 2020. Greenbrier manufactures railcars and marine vessels, provides railcar maintenance, and leases and manages railcars. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $550.7 million | $403.0 million |
| Gross margin dollars / percentage | $47.6 million / 8.6% | $40.7 million / 10.1% |
| Operating income (loss) | $11.8 million | $(2.1) million |
| Net income (loss) attributable to Greenbrier | $10.8 million | $(10.0) million |
| Diluted earnings (loss) per share | $0.32 | $(0.30) |
| Cash from (used in) operating activities | $(196.7) million | $8.6 million |
| Capital expenditures | $186.9 million | $38.6 million |
- Revenue increased 36.7%, primarily due to a 37.0% increase in railcar deliveries, to 3,700 units.
- Manufacturing revenue rose 48.6% to $452.5 million; segment operating profit was $12.3 million. Manufacturing margin fell to 6.8% from 7.8%, reflecting higher steel and other input costs and product mix.
- Maintenance Services revenue grew 10.4% to $72.4 million, but the segment recorded a $1.1 million operating loss, compared with a $0.2 million loss.
- Leasing & Management Services revenue declined 21.6% to $25.8 million, while operating profit rose to $17.2 million, partly reflecting a higher gain on equipment dispositions. Consolidated gain on disposition of equipment was $8.5 million, versus $0.9 million.
- Operating cash outflow reflected working-capital needs associated with higher production and input costs, including increases in receivables, inventory, and railcars held for syndication. Investing cash outflow was $158.7 million, principally reflecting lease-fleet investment.
- At November 30, 2021, cash and cash equivalents were $410.8 million, restricted cash was $27.1 million, and available committed credit borrowings were $199.0 million. Revolving notes were $516.3 million and notes payable, net, were $895.7 million. Total equity was $1.40 billion.
Material changes and management commentary
- Management said the North American freight-rail equipment market was beginning to emerge from a cyclical downturn and the broader economy continued recovering, while emphasizing that operating conditions remained challenging.
- Railcar backlog was 28,000 units, estimated at $2.98 billion at quarter-end, with deliveries extending into 2024; marine backlog was $61 million, with deliveries extending into 2023. Management cautioned that backlog is not necessarily indicative of future results and may be changed, delayed, or canceled.
- Greenbrier reported 6,300 new railcar orders valued at approximately $0.7 billion during the quarter. It also acquired more than 3,600 railcars, partly for its leasing fleet.
- The company changed its basis for allocating syndication revenue between Manufacturing and Leasing & Management Services effective September 1, 2021. Prior segment results were recast; consolidated revenue was unaffected. Two segment names also changed, without changing the reporting structure.
- Adoption of convertible-instrument accounting guidance reduced additional paid-in capital by approximately $59 million, increased retained earnings by approximately $5 million, and increased the convertible-notes balance by approximately $71 million. The company reported no liquidity or cash-flow impact from adoption.
Outlook, risks, and contingencies
- For fiscal 2022, management estimated capital expenditures of approximately $275 million for Leasing & Management Services, $55 million for Manufacturing, and $10 million for Maintenance Services. Asset-sale proceeds were expected to be approximately $145 million.
- Management stated that existing funds, operating cash generation, and financing availability were expected to be sufficient for the next 12 months to fund debt repayments, working capital, planned capital expenditures, affiliate investments, and dividends. The company reported compliance with its debt covenants at quarter-end.
- A quarterly dividend of $0.27 per share was declared January 6, 2022. The share-repurchase authorization had $100 million remaining at quarter-end; no shares were repurchased during the quarter.
- Key operating risks include COVID-related workforce or facility disruption, labor shortages, inflation and wage pressure, higher interest rates, supply and logistics constraints, currency volatility, and customers’ or suppliers’ financial or operating difficulties. Management said these could impair margins, liquidity, and the conversion of backlog into revenue.
- The Portland Harbor Superfund matter and related environmental investigations could result in remediation or natural-resource-damage costs. Greenbrier said it could not determine its liability or estimate a potential loss range from the information available. The company also described potential legacy railcar retrofit and repair obligations assumed in the ARI acquisition; their material impact was not determinable.
Important facts for investors to verify
- Whether manufacturing input-cost inflation, labor availability, and supply-chain delays affect margins and delivery schedules despite contract price-escalation provisions.
- Whether operating cash flow improves after the quarter’s substantial working-capital use and lease-fleet investment.
- How the $2.98 billion railcar backlog converts to deliveries, revenue, and cash, including any changes in customer orders or product mix.
- Future borrowing needs, interest costs, and liquidity under the company’s leasing strategy and variable-rate debt exposure.
- Any new information that clarifies the potential cost or allocation of Portland Harbor environmental liabilities and assumed ARI obligations.