The Greenbrier Companies, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended August 31, 2015. The filing also reports fourth-quarter results. Greenbrier designs and manufactures railcars and marine vessels and provides wheel and parts services, leasing and fleet management; railcar repair is conducted through its 50%-owned GBW joint venture.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $2.605 billion | $2.204 billion |
| Margin | $537.4 million; 20.6% | $322.2 million; 14.6% |
| Earnings from operations | $386.9 million | $239.5 million |
| Net earnings attributable to Greenbrier | $192.8 million | $111.9 million |
| Diluted EPS | $5.93 | $3.44 |
| Cash provided by operating activities | $192.3 million | $135.9 million |
| Capital expenditures | $106.0 million | $70.2 million |
| Cash and cash equivalents at year-end | $172.9 million | $184.9 million |
| Revolving notes and notes payable at year-end | $377.3 million | $458.2 million |
FY2015 total net earnings were $265.3 million; $72.5 million was attributable to noncontrolling interests, primarily the Mexican manufacturing joint venture. Interest and foreign-exchange expense was $11.2 million, including a $7.8 million foreign-exchange gain. The effective tax rate was 29.9%.
Fourth quarter: Revenue was $765.5 million, earnings from operations were $135.5 million, net earnings attributable to Greenbrier were $66.9 million, and diluted EPS was $2.02. In Q4 FY2014, the comparable amounts were $618.1 million, $99.2 million, $47.4 million and $1.43, respectively.
Liquidity and debt: Cash declined $12.0 million during FY2015. At August 31, $268.0 million was available under committed credit facilities; the company also reported $47.2 million in letters of credit. In October 2015, after year-end, its U.S. revolving facility was renewed and increased from $290 million to $550 million, with maturity extended to October 2020. Debt includes $119.1 million of 3.5% convertible notes due 2018 and approximately $192.5 million in term loans. Debt covenants restrict, among other things, additional borrowing, dividends and share repurchases.
Changes and operating drivers
- Revenue rose 18.2% year over year, driven mainly by a 31.5% increase in Manufacturing revenue and 30% more railcar deliveries. Manufacturing margin expanded to 20.8% from 15.4%, attributed to pricing, efficiency, foreign-exchange effects and more railcars sold with leases attached.
- Wheels & Parts revenue fell 25.1%, largely because the Repair business was contributed to GBW in July 2014 and its results were no longer consolidated. The segment’s margin rate improved to 9.8% from 6.4%; its operating profit fell to $27.6 million from $40.6 million, with FY2014 including a $29.0 million non-cash joint-venture contribution gain.
- Leasing & Services revenue increased 17.5% to $98.0 million, mainly from more rent-producing cars held for syndication and growth in management services. Operating profit was nearly flat at $41.9 million.
- Railcar deliveries were 21,100 versus 16,200. Railcar backlog reached 41,300 units valued at an estimated $4.71 billion, compared with 31,500 units and $3.33 billion a year earlier. At least 17,000 backlog units were scheduled for 2016 delivery; most remaining production was scheduled for 2017–2018. Marine backlog declined to $52 million from $112 million.
- Inventory increased to $445.5 million from $305.7 million, and leased railcars for syndication rose to $212.5 million from $125.9 million. The related growth in working-capital needs partly reflects increased production and cars moving through the syndication model.
Outlook, risks and unusual items
- The filing gives no specific FY2016 revenue or earnings guidance. Management estimated FY2016 capital expenditures of approximately $50 million for Manufacturing, $9 million for Wheels & Parts, and $30 million for Leasing & Services and corporate; expected leased-railcar sale proceeds were approximately $14 million. Management said available cash, operating cash flow and financing were expected to fund near-term needs, planned investment and debt repayments.
- Management cited strong freight-car demand and plans to begin Saudi-market railcar production in 2016 for delivery beginning in 2017. Actual outcomes remain exposed to the cyclical rail industry, order cancellations or delays, product mix, customer demand and steel or specialty-component availability and cost.
- Energy-market weakness and new U.S. and Canadian tank-car requirements could affect demand, production costs, component supply and retrofit activity. Greenbrier had invested in facilities and GBW capacity in anticipation of retrofit and new-tank-car demand, which may not materialize as expected.
- One customer, TTX Company, represented approximately 17% of FY2015 revenue. The top ten suppliers accounted for approximately 45% of inventory purchases; Amsted Rail represented 18%.
- Environmental contingency: Greenbrier is among more than 140 potentially responsible parties associated with the Portland Harbor Superfund site. The EPA’s August 2015 draft study estimated site-wide cleanup costs of $790 million to $2.4 billion, but did not allocate costs among parties or identify a sub-area estimate. The company said it could not determine its liability or estimate a potential loss; historical investigation spending had not been material. Remediation, natural-resource damages, or limits on dredging and vessel launches could adversely affect the business.
- Other notable matters include a September 2015 purchase, after fiscal year-end, of 3,885 railcars from WLR-GBX, an entity affiliated with a director; the transaction was approved by disinterested independent directors, and Greenbrier planned to syndicate the cars. Greenbrier also made $31.5 million in loans to GBW during FY2015 and expected to lend approximately $5 million more in 2016.
- FY2015 included no major impairment or restructuring charge. FY2014 included a $29.0 million pre-tax, non-cash gain on forming GBW; FY2013 included a $76.9 million goodwill impairment charge. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the $4.71 billion railcar backlog converts to deliveries and revenue on schedule, and how product mix or cancellations affect its value.
- Whether stronger Manufacturing margins and elevated production can be sustained as demand, input costs and tank-car rules evolve.
- Whether leased cars held for syndication—including the WLR-GBX portfolio—are sold on expected terms, and whether inventory and working-capital balances normalize.
- How the Portland Harbor investigation and EPA cleanup decision affect Greenbrier’s potential liability; the filing provides no clear estimate of the company’s share.
- Whether liquidity, covenant headroom and debt maturities remain manageable while funding capital spending, shareholder returns and support for GBW.