Greenbrier Companies, Inc. — Q1 FY2014 Form 10-Q
Reporting period: Three months ended November 30, 2013; comparisons are with the three months ended November 30, 2012 unless otherwise stated. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.
Business context and key financial results
Greenbrier manufactures railcars and marine vessels, provides railcar wheel, repair and parts services, and owns and manages railcars. Its three operating segments are Manufacturing; Wheels, Repair & Parts; and Leasing & Services.
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $490.4 | $415.4 |
| Margin (revenue less cost of revenue) | $61.6; 12.6% of revenue | $47.8; 11.5% |
| Earnings from operations | $38.2; 7.8% of revenue | $23.1; 5.6% |
| Net earnings | $23.0 | $12.6 |
| Net earnings attributable to Greenbrier | $15.4 | $10.4 |
| Diluted earnings per share | $0.49 | $0.35 |
| Operating cash flow | $(13.5) | $(25.5) |
Revenue increased 18%, mainly on higher manufacturing deliveries. Manufacturing delivered approximately 3,700 railcars, versus 2,900. Manufacturing revenue was $359.5 million and operating profit $38.3 million, up from $285.4 million and $15.5 million; margin improved to 13.4% from 9.4%, attributed to product mix and production efficiency. Wheels, Repair & Parts revenue was $113.4 million, but operating results shifted to a $0.4 million loss from $6.1 million profit. Leasing & Services revenue was $17.5 million and operating profit $8.7 million, broadly steady; 97.0% of owned units were on lease, compared with 95.2% a year earlier.
Balance sheet, debt and liquidity
- At November 30, 2013, cash and cash equivalents were $81.2 million, down from $97.4 million at August 31, 2013; restricted cash was $9.0 million.
- Revolving notes were $38.8 million and notes payable $372.7 million, for reported borrowings of approximately $411.5 million, versus $422.1 million at August 31. Total equity was $482.9 million.
- Management reported $314.7 million available under committed credit facilities. These facilities are subject to borrowing-base limits and financial covenants; European lines are periodically renewed.
- Operating cash use was $13.5 million. Investing activities provided $6.1 million, including $14.1 million in asset-sale proceeds, while capital expenditures were $6.5 million. Financing activities used $10.9 million.
- An $81.8 million balloon payment on a railcar-secured term note was due in March 2014. Management expected to refinance it, and stated that existing funds, operating cash generation and financing sources should cover the next 12 months’ needs, planned capital spending and debt repayments.
Material changes, outlook and risks
- Manufacturing backlog was approximately 13,500 railcars valued at $1.43 billion, compared with 9,700 units and $1.11 billion a year earlier. Subsequent to quarter end, Greenbrier received orders for 1,100 railcars valued at about $130 million, subject to customary documentation and final terms. Marine backlog fell to about $5 million from $20 million.
- Management planned approximately $80 million of FY2014 capital expenditures: $60 million for Manufacturing, $10 million for Leasing & Services and $10 million for Wheels, Repair & Parts. It expected approximately $60 million of leased-railcar sale proceeds. The filing provides no specific revenue or earnings guidance.
- A restructuring plan to sell or close certain Wheels, Repair & Parts facilities generated $0.9 million of charges in the quarter. Management expected an additional $1 million–$2 million of cash restructuring charges in 2014; additional non-cash effects were not estimable.
- The landlord of a leased Sahagun, Mexico manufacturing facility notified Greenbrier that it would not renew the lease expiring in November 2014. The company identified a possible alternative site and was considering other capacity options; delays or insufficient replacement capacity could disrupt production and adversely affect results.
- Greenbrier authorized up to $50 million of share repurchases through April 30, 2015. It repurchased approximately $0.9 million of shares during the quarter and approximately $2.5 million more through January 6, 2014.
- Environmental exposure remains uncertain at the Portland Harbor Superfund site. The filing states that Greenbrier cannot determine any potential liability or estimate a loss range; cleanup estimates for the area adjacent to its facility in a draft study ranged from $9 million to $163 million, without allocating responsibility among potentially responsible parties. Management said its investigation-period spending had not been material.
- The Mexican joint venture had $40.8 million of third-party debt, of which Greenbrier guaranteed approximately $32.9 million. Other risks include cyclical railcar demand, customer cancellations, raw-material prices and availability, covenant compliance, and refinancing and renewal of credit facilities. Management reported no material changes to other previously disclosed risk factors.
Important facts for investors to verify
- Whether the $81.8 million March 2014 maturity was refinanced on acceptable terms and whether covenant and borrowing-base headroom remained adequate.
- Execution of the Sahagun replacement-capacity plan before the leased facility’s November 2014 expiration.
- Conversion of railcar backlog and post-quarter orders into deliveries and revenue, including any cancellations or product-mix changes.
- Progress and potential cost allocation in the Portland Harbor environmental investigation, where the company disclosed no estimable loss range.
- Whether Wheels, Repair & Parts restructuring improves margins and whether actual cash and non-cash costs remain within or near expectations.