Greenbrier Companies, Inc. — Q1 FY2012 Form 10-Q
Reporting period: Three months ended November 30, 2011; comparisons are with the three months ended November 30, 2010 unless noted. The filing is unaudited. Greenbrier manufactures railcars and marine vessels, provides railcar repair and parts services, and owns and manages railcars.
Financial performance
| Metric | Q1 FY2012 | Prior period |
|---|---|---|
| Revenue | $398.2 million | $198.9 million |
| Margin (revenue less cost of revenue) | $46.5 million; 11.7% of revenue | $23.7 million; 11.9% |
| Operating earnings | $26.9 million | $8.2 million |
| Net earnings (loss) attributable to Greenbrier | $14.5 million; $0.57 basic and $0.48 diluted per share | $(2.3) million; $(0.11) per share |
| Operating cash flow | $(9.0) million | $(47.4) million |
- Revenue more than doubled, driven by Manufacturing, whose revenue rose to $262.7 million from $85.4 million. Railcar deliveries increased to approximately 3,300 from 1,050.
- Manufacturing margin improved to 10.1% from 6.7%, reflecting product mix and higher production rates. Wheel Services, Refurbishment & Parts revenue was $117.7 million and margin was 10.1%; Leasing & Services revenue was $17.8 million and margin was 45.7%.
- Interest and foreign exchange expense declined to $5.4 million from $10.3 million, primarily reflecting lower interest rates and refinancing. Selling and administrative expense increased to $23.2 million from $17.9 million.
Balance sheet, liquidity and cash flow
- At November 30, cash and cash equivalents were $20.9 million, down from $50.2 million at August 31, 2011. Operating cash use was partly driven by higher inventory and railcars held for syndication.
- Capital expenditures were $15.0 million; investing cash use was $9.2 million. Financing cash use was $5.9 million. The quarter’s cash decline also included a $5.2 million adverse effect from exchange-rate changes.
- Revolving notes were $80.7 million and notes payable were $431.2 million, or approximately $511.9 million in combined reported borrowings. Total equity was $382.9 million.
- Committed credit facilities had $209.1 million available to draw at quarter-end. The North American revolving line was increased by $30 million to $290 million on December 12, 2011. Management said available funds, operating cash generation and financing were expected to cover working capital, planned capital expenditures and expected debt repayments for the next 12 months.
- Planned FY2012 capital expenditures were approximately $40 million for Leasing & Services, $25 million for Manufacturing and $17 million for Wheel Services, Refurbishment & Parts. Quarterly dividends had been suspended since Q3 2009.
Changes, outlook and key risks
- Railcar manufacturing backlog was approximately 13,300 units valued at $1.08 billion, versus 8,100 units and $580 million a year earlier. After quarter-end, Greenbrier received orders for 2,400 railcars valued at approximately $240 million. Marine backlog was approximately $5 million, down from $10 million. Management cautioned that backlog is not necessarily indicative of future results and that product mix may affect its value.
- Management described freight-car markets as recovering while marine barge demand remained soft. It cited possible component supply constraints and volatile steel and surcharge prices; contracts generally provide fixed pricing that anticipates increases or pass-through provisions.
- European credit facilities, totaling $17.5 million, had maturities from April through December 2012 and were subject to ongoing renewal. The filing also describes borrowing-base and financial covenants. No earnings guidance was provided.
- Environmental exposure at the Portland Harbor Superfund site remains under investigation; the company could not estimate ultimate liability. The filing also discusses continuing warranty disputes involving SEB and Okombi. Management stated that estimated SEB repair costs did not exceed accruals and believed resolution of the identified litigation would not materially adversely affect the financial statements.
- Foreign-exchange and interest-rate hedges had an aggregate $12.0 million fair-value liability at quarter-end. A 10% rise in interest rates was estimated to add about $0.5 million in annual interest expense. Warranty accruals were $8.9 million, up from $6.3 million a year earlier.
- Common shares outstanding rose to 26.669 million from 25.186 million, including 1.483 million shares issued through warrant exercises. Diluted EPS includes the effects of warrants and convertible notes.
- The company changed presentation of gains on equipment dispositions, moving them from revenue to a separate operating line; the change reduced reported prior-year revenue by $2.5 million but did not change net earnings.
Important facts for investors to verify
- Whether the higher railcar backlog converts to deliveries and cash generation, and whether component availability and steel costs affect margins.
- Progress in selling or syndicating railcars held for syndication, which increased to $68.0 million from $30.7 million at August 31, 2011.
- Renewal of near-term European credit facilities, compliance with debt covenants, and the availability of the stated credit capacity.
- Developments and potential costs in the Portland Harbor environmental matter and the SEB and Okombi disputes.
- How much of the reported earnings improvement translates into sustained operating cash flow; the quarter remained cash-flow negative from operations.