Greenbrier Companies, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended August 31, 2019. The filing also provides unaudited fourth-quarter results; this is an annual report, not a standalone quarterly filing.
Business context
Greenbrier designs and manufactures freight railcars and marine vessels, and provides wheel services, railcar repair and parts, leasing, and fleet-management services. Its three reportable segments are Manufacturing; Wheels, Repair & Parts; and Leasing & Services. The company completed its acquisition of American Railcar Industries’ manufacturing business on July 26, 2019.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $3.034 billion | $2.519 billion |
| Gross margin dollars / margin rate | $366.5 million / 12.1% | $409.1 million / 16.2% |
| Operating earnings | $184.1 million | $253.0 million |
| Net earnings attributable to Greenbrier | $71.1 million | $151.8 million |
| Diluted EPS | $2.14 | $4.68 |
| Cash from operating activities | $(21.2) million | $103.3 million |
- Revenue increased 20.4%, but attributable net earnings declined 53.2%. Railcar deliveries rose 18.4% to 22,500.
- Manufacturing revenue was $2.431 billion; segment operating profit was $217.6 million. Wheels, Repair & Parts revenue was $444.5 million and segment operating loss was $2.9 million. Leasing & Services revenue was $157.6 million and segment operating profit was $64.8 million.
- Fourth-quarter revenue was $914.2 million, net earnings attributable to Greenbrier were $35.1 million, and diluted EPS was $1.06.
- At August 31, cash and restricted cash totaled $338.5 million ($329.7 million cash and cash equivalents). Total assets were $2.991 billion and total equity was $1.442 billion.
- Notes payable were $860.5 million before debt discounts and issuance costs; revolving notes were $27.1 million. The company reported $311.5 million of availability across committed credit facilities and compliance with debt covenants.
- Capital expenditures were $198.2 million. The company paid $1.00 per share in dividends for the year.
Material changes and management commentary
- Manufacturing revenue growth reflected higher delivery volume, product mix, and the addition of ARI, which contributed $43.0 million of revenue after acquisition; manufacturing margins fell amid mix changes and facility inefficiencies, including supplier delivery failures at European operations.
- Wheels, Repair & Parts revenue included $87.5 million from repair shops returned after the GBW joint venture was discontinued. Repair inefficiencies, site-closure costs, and a $10.0 million non-cash goodwill impairment contributed to the segment’s operating loss.
- Leasing & Services revenue rose largely from resales of railcars purchased from third parties, which carry lower margins. Its operating profit fell 26.8%, partly due to lower gains on equipment dispositions and fewer rent-producing cars syndicated.
- Cash from operations turned negative, primarily reflecting lower earnings and working-capital investment as production increased. Investing cash outflow increased to $444.0 million, mainly due to the ARI acquisition; the acquisition’s reported purchase price was $418.3 million.
- Railcar backlog was 30,300 units valued at an estimated $3.28 billion, versus 27,400 units and $2.74 billion a year earlier. About 20,000 units were scheduled for delivery in FY2020. Marine backlog was $100 million. Backlog is subject to changes, delays, or cancellation and is not a guarantee of future revenue.
Outlook, risks and unusual items
- Management expected FY2020 capital expenditures of approximately $95 million for Manufacturing, $15 million for Wheels, Repair & Parts, and $30 million for Leasing & Services and corporate. Expected proceeds from leased-railcar sales were approximately $95 million. The filing does not provide a clear full-year revenue or earnings forecast.
- Management expected existing funds, operating cash flow, and available financing to cover anticipated debt repayments, working capital, planned capital expenditures, affiliate investments, and dividends over the next 12 months.
- Key risks include cyclical railcar demand, backlog conversion and customer order changes, reliance on a major customer (TTX accounted for approximately 26% of FY2019 revenue), steel and component supply and cost pressures, skilled-labor availability, and the ability to integrate ARI and realize expected benefits.
- Debt exposes the company to refinancing, covenant, and variable-rate risks. At year-end, 36% of outstanding debt was variable-rate; the company used interest-rate swaps to fix rates on a portion of borrowings.
- Potential liability from the Portland Harbor Superfund site remains unquantifiable: the EPA’s estimated site-wide cleanup cost was $1.7 billion, but responsibility has not been allocated and the company said it could not estimate its potential loss. The company also disclosed Portland-site investigations and assumed potential legacy railcar retrofit and repair liabilities in the ARI acquisition.
- Other notable items: FY2019 included the $10.0 million goodwill impairment and acquisition-related costs; the effective tax rate was 27.1%, compared with 14.7% in FY2018, which benefited from a one-time Tax Act-related deferred-tax benefit. The company adopted the new revenue-recognition standard, with a $5.5 million cumulative increase to opening retained earnings; management expected no material impact on results of operations from the upcoming lease-accounting adoption.
Important facts for investors to verify
- Whether ARI integration, preliminary purchase-price allocation, and acquired legacy liabilities affect future margins, cash needs, or reported earnings.
- Whether manufacturing margin and facility execution improve, and whether the FY2020 delivery schedule and backlog value convert to revenue as expected.
- Whether working capital recovers sufficiently to restore positive operating cash flow while supporting planned capital expenditures and dividends.
- Debt maturities, available borrowing capacity, covenant headroom, and exposure to interest-rate changes.
- Developments in Portland Harbor remediation and cost allocation, including any change in the company’s currently unestimable potential exposure.
- Customer concentration, particularly TTX, and trends in railcar demand, lease utilization, and railcar resale values.