Greenbrier Companies, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended February 29, 2012; filed April 9, 2012. Dollar amounts below are in millions unless noted.
Business context and reporting period
Greenbrier operates in railcar and marine manufacturing, wheel services/refurbishment/parts, and leasing and services. Management reported a continuing recovery in freight-car markets, while demand for marine barges remained soft. The company owned approximately 9,100 railcars and managed approximately 216,000 railcars.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $458.2 | $284.3 | $856.4 | $483.3 |
| Operating earnings | $29.2 | $10.9 | $56.0 | $19.1 |
| Net earnings (loss) attributable to Greenbrier | $17.7 | $(0.6) | $32.2 | $(2.9) |
| Diluted EPS | $0.57 | $(0.02) | $1.04 | $(0.13) |
| Operating cash flow | Not stated separately | Not stated separately | $(7.9) | $(51.7) |
| Capital expenditures | Not stated separately | Not stated separately | $35.7 | $30.1 |
Consolidated margin was $51.5 million in Q2, approximately 11.2% of revenue, versus $26.6 million, approximately 9.4%, a year earlier. Six-month margin was $97.9 million, approximately 11.4%, versus $50.3 million, approximately 10.4%. Q2 segment margins were Manufacturing $29.4 million (9.2% of segment revenue), Wheel Services $13.3 million (11.1%), and Leasing & Services $8.8 million (48.6%).
At February 29, cash and cash equivalents were $40.7 million, down from $50.2 million at August 31, 2011. Revolving notes were $101.4 million and notes payable were $428.5 million; combined reported borrowings were approximately $529.9 million. Total assets were $1.377 billion and total equity $415.6 million. The company reported $252.9 million available to draw under committed credit facilities, including $239.8 million in North America, $9.1 million in Europe, and $4.0 million for the Mexican joint venture. Its credit facilities indicated maximum additional borrowing capacity of $517.2 million, subject to borrowing-base and covenant limits.
Changes versus the prior comparable period
- Q2 revenue rose 61% year over year, principally on higher manufacturing deliveries, pricing and product mix. Railcar deliveries were approximately 3,700 versus 2,200; six-month deliveries were approximately 7,000 versus 3,300.
- Q2 manufacturing margin improved to 9.2% from 5.8%, which management attributed to higher production rates, improved efficiencies and pricing. Wheel Services margin rose to 11.1% from 9.5%; Leasing & Services margin rose to 48.6% from 44.4%.
- Six-month interest and foreign-exchange expense declined to $12.0 million from $20.8 million, primarily reflecting lower-cost refinancing and repayment of term debt. Selling and administrative expense increased to $48.2 million from $35.6 million, although it fell as a share of revenue.
- Operating cash use improved to $7.9 million from $51.7 million, but remained negative. Management attributed the improvement chiefly to the timing of working-capital requirements. Inventory increased to $365.8 million from $323.5 million at fiscal year-end, and railcars held for syndication rose to $79.7 million from $30.7 million.
- Presentation changed for equipment-disposition gains: they are now shown separately below margin rather than netted against revenue. Prior-period revenue and gain line items were reclassified; net earnings were unchanged.
Outlook, management commentary, risks and contingencies
- Manufacturing backlog at February 29 was approximately 12,500 railcars valued at $1.1 billion, compared with 9,500 units valued at $720 million a year earlier. After quarter-end, Greenbrier received orders for 2,300 railcars valued at approximately $270 million. Management cautioned backlog is not necessarily indicative of future results and that product mix may affect its value.
- Marine backlog was approximately $2 million, versus $3 million a year earlier. Management said marine demand remained soft.
- Management expected existing funds, operating cash generation and financing availability to be sufficient for working capital, planned capital expenditures and expected debt repayments over the next 12 months. 2012 capital expenditure estimates were approximately $28 million for Manufacturing, $17 million for Wheel Services, and $25 million for Leasing & Services net of expected railcar-sale proceeds.
- The filing did not provide a specific earnings or revenue forecast. Management estimated a 32.6% annual effective tax rate for 2012; the six-month reported rate was 29.9%, including a benefit from releasing foreign deferred-tax valuation allowances.
- Key operating exposures include cyclical rail and marine demand, steel and component prices and availability, production ramp-up and delivery execution, customer cancellations, utilization and lease renewals, and access to credit and covenant compliance. European facilities had maturities ranging from June 2012 to March 2013; Mexican joint-venture advances also had near-term maturities.
- Environmental investigations at the Portland Harbor Superfund site were ongoing, and the company could not estimate its ultimate liability. Other contingencies include SEB railcar warranty claims and an Okombi freight-car dispute; management stated estimated SEB repair costs did not exceed accruals and believed resolution of the identified litigation would not materially adversely affect the financial statements.
- Greenbrier had guaranteed approximately $38.4 million of the Mexican joint venture’s $46.8 million third-party debt. European warranty and performance guarantee facilities of $3.5 million were fully utilized, though no amounts had been drawn.
Most important facts for investors to verify
- Whether the large railcar backlog and post-quarter orders convert to deliveries, revenue and margin, and whether production can ramp without component shortages or delays.
- Whether operating cash flow turns positive as inventory and railcars held for syndication increase, and whether syndication sales occur on expected terms.
- Available borrowing capacity, covenant headroom, refinancing of near-term European and Mexican facilities, and the company’s exposure under its Mexican joint-venture guarantee.
- Updated estimates or developments concerning Portland Harbor remediation and the SEB and Okombi claims, including adequacy of recorded accruals.
- The effect on reported per-share results of dilution: Q2 basic EPS was $0.66 while diluted EPS was $0.57, with convertible-note and warrant dilution included.