GATX Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. GATX leases, operates, manages, and remarkets long-lived assets, primarily railcars. Its segments are Rail North America, Rail International, Portfolio Management, and Other. The American Steamship Company sale is presented as discontinued operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $313.5 million | $304.4 million | $936.4 million | $904.3 million |
| Net income from continuing operations | $40.1 million | $48.2 million | $82.1 million | $132.4 million |
| Diluted EPS from continuing operations | $1.11 | $1.36 | $2.28 | $3.74 |
| Net cash from continuing operating activities | Not separately stated for the quarter | Not separately stated for the quarter | $340.0 million | $302.1 million |
Q3 revenue increased 3.0%, while continuing-operations net income fell 16.8%. For the first nine months, revenue increased 3.6%, while continuing-operations net income declined 38.0%. The company reported net gains on asset dispositions of $21.9 million in Q3 and $79.1 million year to date. Maintenance expense was $74.2 million and $225.1 million, respectively; interest expense, net, was $49.8 million and $153.4 million.
Balance-sheet total assets were $9.586 billion at September 30, 2021, versus $8.938 billion at December 31, 2020. Cash was $566.0 million, compared with $292.2 million at year-end. Debt was $6.051 billion, including $6.030 billion of recourse debt; shareholders’ equity was $1.977 billion. Recourse leverage was 2.9x, versus 2.8x at year-end. Cash and cash equivalents were $566.0 million; the filing reports $566.2 million including restricted cash.
Investment and capital additions totaled $893.2 million for the first nine months, compared with $641.4 million a year earlier. The company reported $159.0 million of portfolio proceeds and $43.7 million of other asset-sale proceeds. It had $850 million available under U.S. revolving facilities and €17.1 million available under European credit facilities. All credit-agreement covenants were satisfied.
Segment and period comparisons
- Rail North America: Q3 segment profit rose to $66.5 million from $56.1 million; nine-month profit rose to $209.8 million from $178.1 million. Higher disposition gains and lower maintenance expense more than offset lower revenue. Utilization reached 99.2%; the renewal lease-price index remained negative at 8.1%, improved from negative 29.4% a year earlier.
- Rail International: Q3 segment profit increased to $27.0 million from $24.0 million; nine-month profit increased to $76.1 million from $57.9 million. Growth reflected more railcars on lease and, year to date, favorable foreign-exchange effects.
- Portfolio Management: Q3 segment profit dropped to $6.2 million from $44.3 million; nine-month profit fell to $24.5 million from $83.1 million. The prior-year comparison included substantial Rolls-Royce joint-venture engine-sale gains. COVID-19-related aviation weakness continued to pressure affiliate utilization, lease rates, and results. GATX’s new direct engine-leasing business acquired 14 engines for approximately $352 million in Q1.
- Other: Includes Trifleet, acquired in December 2020, as well as unallocated expenses. Trifleet reported improved Q3 demand and utilization; utilization was 87.5% at quarter-end.
The nine-month GAAP result included a $39.7 million after-tax adverse effect from the U.K. tax-rate change and approximately $3.4 million after-tax impact from debt-extinguishment costs. Excluding these and other specified items, management reported non-GAAP continuing-operations net income of $125.2 million, versus $144.7 million in the prior-year period. Q3 non-GAAP continuing-operations net income was $40.1 million versus $60.5 million; the prior-year quarter included a $12.3 million adverse tax adjustment.
Outlook, risks, and contingencies
- The filing provides no specific numerical earnings or revenue guidance. Management cautions that interim results may not indicate full-year results, in part because asset-remarketing gains vary in timing.
- Management described improving North American rail-market conditions, including stronger demand and utilization, but noted ongoing uncertainty from COVID-19 and increased maintenance-facility disruptions associated with the Delta variant. European and Indian railcar delivery delays also constrained fleet growth.
- Air travel remained below pre-pandemic levels. Management expected COVID-19’s adverse effect on near-term aircraft-engine leasing results to continue, with uncertain magnitude and duration.
- Contractual commitments totaled $9.517 billion, including $1.288 billion of purchase commitments, primarily for railcars. The company also disclosed $9.5 million of commercial commitments and stated that no related balance-sheet liabilities were recorded and no material losses were anticipated.
- Legal claims and other contingencies arise in the ordinary course; outcomes are uncertain. The filing refers readers to the 2020 Form 10-K for further details. Management reported no material change in risk factors since year-end 2020.
- Other key exposures include asset remarketing and residual values, customer demand and credit, financing costs and ratings, foreign exchange, supply-chain and manufacturing disruption, environmental liabilities, and cybersecurity. The company said COVID-19 had not materially changed its impairment conclusions for the quarter, but it will continue monitoring assets and investments.
Important facts for investors to verify
- Whether recurring rail and leasing performance can sustain high utilization and improve renewal pricing, particularly in North America.
- How much earnings depend on asset-disposition gains and how results compare after the disclosed tax and debt-extinguishment adjustments.
- Whether aviation recovery improves RRPF affiliate utilization, lease rates, and earnings, and how GEL’s direct engine investments perform.
- How railcar purchase commitments and elevated investment spending affect debt, leverage, and liquidity.
- The eventual purchase-price allocation for Trifleet, which remained preliminary, and developments in legal, environmental, and other contingencies.