Business Context and Reporting Period
Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: May 31, 2010 (Nine months ended May 31, 2010)
Industry: Railcar manufacturing, refurbishment, parts, and leasing services.
Operations: The Company operates three segments: Manufacturing (new railcars and marine vessels), Refurbishment & Parts (repair and component production), and Leasing & Services (fleet ownership and management). Operations are located in the U.S., Mexico, and Poland.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended May 31, 2010 | Nine Months Ended May 31, 2010 | Balance Sheet (May 31, 2010) |
|---|---|---|---|
| Total Revenue | $211,455 | $583,099 | - |
| Net Earnings (Loss) Attributable to Greenbrier | $4,563 | $(3,433) | - |
| Diluted EPS | $0.23 | $(0.20) | - |
| Operating Cash Flow | - | $36,224 | - |
| Cash and Cash Equivalents | - | - | $116,595 |
| Total Debt (Notes Payable + Revolving) | - | - | $518,135 |
| Working Capital | - | - | $(11,934) |
Note: Working Capital calculated as Current Assets ($417,901) minus Current Liabilities ($429,835).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue for the nine months ended May 31, 2010, decreased by $204.6 million (26%) compared to the prior year period, driven primarily by lower railcar deliveries and a shift in product mix.
- Profitability Improvement: Net loss attributable to Greenbrier narrowed significantly to $3.4 million for the nine months ended May 31, 2010, compared to a net loss of $62.5 million in the prior year. The prior year loss included a $55.7 million non-cash goodwill impairment charge.
- Segment Performance:
- Manufacturing: Revenue down $128.3 million; margin improved to 8.7% from -1.6% due to favorable product mix and efficiencies.
- Refurbishment & Parts: Revenue down $74.7 million; margin improved to 12.1% from 11.4% aided by higher scrap metal prices and insurance proceeds.
- Leasing & Services: Revenue slightly down $1.7 million; margin increased to 45.1% from 40.1% due to gains on asset sales.
- Backlog Reduction: Manufacturing backlog dropped to approximately 4,400 units ($370 million) from 14,100 units ($1.25 billion) in the prior year.
Guidance, Outlook, and Risks
- Capital Raise: In May 2010, the Company issued 4.5 million shares of common stock, raising net proceeds of $52.7 million. Proceeds are designated for working capital, capital expenditures, debt repayment, or acquisitions.
- Debt Management: The Company retired $22.2 million of convertible senior notes in April 2010, realizing a $2.3 million gain. Total debt remains high, with $518 million in notes payable and revolving notes.
- Market Conditions: Management cites depressed demand, market saturation, and tight capital markets as headwinds. Production rates have been reduced (e.g., 4-day work week) in response to uncertain outlooks.
- Key Risks:
- Cyclicality: Business is highly sensitive to economic downturns and interest rates.
- Raw Materials: Volatility in steel and scrap prices significantly impacts margins.
- Environmental Liability: Ongoing EPA investigation regarding the Portland Harbor Superfund site; ultimate liability is undetermined.
- Customer Concentration: Significant revenue reliance on a few major customers (e.g., BNSF, GE, Union Pacific).
Investor Verification Checklist
- Backlog Conversion: Verify the ability to convert the reduced backlog of 4,400 units into revenue, noting that 400 units are subject to cancellation without penalty.
- Debt Covenants: Review compliance with financial covenants regarding debt-to-capitalization and fixed charge coverage ratios, given the high debt load.
- Environmental Exposure: Monitor the status of the Portland Harbor remedial investigation and potential cost allocations.
- Steel Pricing: Assess the impact of fluctuating steel and scrap prices on the Manufacturing and Refurbishment margins.
- Equity Dilution: Evaluate the impact of the recent $52.7 million equity offering on future earnings per share.