Greenbrier Companies, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended May 31, 2022. All amounts are U.S. dollars; financial figures are in millions unless otherwise noted. Greenbrier manufactures railcars and marine vessels, provides railcar maintenance, and leases and manages railcars.
Key financial results
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $793.5 | $450.2 | $2,027.0 | $1,148.8 |
| Gross margin dollars | $76.3 | $75.2 | $178.7 | $133.5 |
| Gross margin as % of revenue | 9.6% | 16.7% | 8.8% | 11.6% |
| Operating earnings (loss) | $19.6 | $25.7 | $56.6 | $(2.1) |
| Net earnings attributable to Greenbrier | $3.1 | $19.7 | $26.7 | $0.7 |
| Diluted EPS | $0.09 | $0.59 | $0.79 | $0.02 |
- Revenue and segment performance: Q3 revenue rose 76.3%, principally as manufacturing revenue increased 91.6% and railcar deliveries rose 75% to 4,900. Nine-month revenue increased 76.4%, with railcar deliveries up 80.6% to 13,000. Q3 Manufacturing operating profit fell to $20.5 from $29.1; Maintenance Services profit increased to $8.6 from $4.2; Leasing & Management Services profit increased to $19.2 from $14.5.
- Margins and earnings: Manufacturing input-cost inflation and production ramp-up inefficiencies pressured margins. Price escalation clauses pass some higher costs to customers, but can raise revenue and cost of sales without increasing margin dollars, reducing the reported margin percentage. Q3 interest and foreign-exchange expense increased to $14.9 from $10.2, mainly due to higher borrowings. Nine-month net earnings benefited from $34.3 of gains on equipment dispositions, compared with $0.8 in the prior-year period.
- Cash flow: Nine-month operating cash flow was $(328.4), versus $(123.8), mainly reflecting working-capital needs from higher production and input costs. Investing cash flow was $(96.1); capital expenditures were $248.8 and asset-sale proceeds were $155.1. Financing cash flow was $199.0, including $323.3 of asset-backed securities proceeds. Cash and restricted cash declined $205.6 to $465.8.
- Debt and liquidity: At May 31, revolving notes were $303.3 and notes payable, net, were $1,202.6, or $1,505.9 combined. Cash and cash equivalents were $449.7, with $16.1 of restricted cash and $85.0 available under committed facilities. Greenbrier reported compliance with debt covenants. It had converted $408.2 of variable-rate debt to fixed via swaps; 77% of outstanding debt was fixed-rate.
- Balance sheet changes: Compared with August 31, 2021, inventory increased to $781.7 from $573.6 and accounts receivable to $464.8 from $306.4, consistent with increased activity and working-capital investment. Notes payable, net, increased to $1,202.6 from $826.5.
Outlook, commentary, risks and contingencies
- Management reported 19,800 new railcar orders valued at approximately $2.3 billion during the first nine months. Railcar backlog was 30,900 units, estimated at $3.6 billion, at May 31—the highest backlog value in six years—with deliveries extending into 2024. Marine backlog was $41 million, with deliveries extending into 2023. Backlog is not a guarantee of future results and may be affected by order changes, cancellations, mix and future pricing.
- For fiscal 2022, management expected capital expenditures of approximately $310 million for Leasing & Management Services, $50 million for Manufacturing, and $10 million for Maintenance Services; anticipated asset-sale proceeds were approximately $155 million. Management expected existing funds, operating cash generation and financing sources to cover expected debt repayments, working capital, capital spending, affiliate investments and dividends over the next 12 months. These are expectations, not guarantees.
- Management cited inflation, rising interest rates, steel and component cost increases, supply-chain and shipping disruption, skilled-labor shortages, COVID-related uncertainty and the Russia-Ukraine conflict. The filing says these factors may pressure costs, production, customer demand, liquidity and profitability. Greenbrier slowed production at European facilities following a lack of new European railcar orders in Q3 and higher costs and disruptions.
- Environmental matters: Greenbrier is among parties potentially responsible for Portland Harbor Superfund remediation and related natural-resource damages. Responsibility and allocation remain unresolved; the company states it cannot estimate its potential liability or loss range. It also may incur remediation costs under Oregon DEQ proceedings. The filing notes possible adverse effects on operations, financial results, property value, dredging or vessel-launch activity.
- Other disclosed exposures include assumed legacy railcar retrofit and repair obligations from the ARI acquisition and ordinary-course litigation. Management said it could not determine whether the legacy obligations would have a material adverse impact; it did not expect pending litigation to materially adversely affect the financial statements.
- A quarterly dividend of $0.27 per share was declared July 6, 2022. The share-repurchase authorization had $100.0 million remaining at May 31, 2022; no shares were repurchased in the first nine months.
Most important facts for investors to verify
- Whether manufacturing margins recover as production ramps and whether inflation, labor and supply-chain costs can be passed through to customers.
- Whether backlog orders convert to deliveries, particularly given disclosed order cancellation and mix/pricing risks and the slowdown in European production.
- Working-capital requirements, operating cash generation, planned fleet investment and the availability and cost of financing.
- Future debt balances, refinancing and interest-rate exposure, including the warehouse facility’s April 2023 conversion and April 2025 maturity.
- Developments in Portland Harbor and DEQ proceedings, where potential remediation liability remains unquantified.
- That nine-month earnings include significant equipment-disposition gains and that prior-year comparisons included a substantial tax benefit and a favorable $15.8 million warranty and other contingency resolution.