Greenbrier Companies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended August 31, 2020; comparisons are primarily with FY2019. Greenbrier designs and manufactures freight railcars and marine barges and provides wheel, repair, parts, leasing, and fleet-management services.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $2.792 billion | $3.034 billion | Down 8.0% |
| Gross margin dollars / margin | $353.1 million / 12.6% | $366.5 million / 12.1% | Margin up 0.5 percentage points |
| Operating earnings | $168.4 million | $184.1 million | Down 8.5% |
| Net earnings attributable to Greenbrier | $49.0 million | $71.1 million | Down 31.1% |
| Diluted EPS | $1.46 | $2.14 | Down 31.8% |
| Operating cash flow | $272.3 million | $(21.2) million | Improved by $293.5 million |
| Capital expenditures | $66.9 million | $198.2 million | Down $131.4 million |
- Cash and restricted cash totaled $842.1 million at year-end, versus $338.5 million a year earlier. Management reported liquidity of approximately $920 million, defined as cash and cash equivalents plus available borrowing capacity; more than 90% was cash.
- Revolving notes were $351.5 million and notes payable, net, were $804.1 million, for total reported borrowings of $1.156 billion. Total equity was $1.473 billion. The company reported compliance with debt covenants at year-end.
- Operating cash flow benefited substantially from working-capital changes, including reductions in receivables and inventory. The company also increased borrowings proactively amid pandemic and economic uncertainty.
- Annual dividends declared were $1.06 per share. A $0.27 quarterly dividend was declared after year-end in October 2020. No shares were repurchased during FY2020.
Material changes versus FY2019
- Manufacturing revenue declined 3.4% as railcar deliveries fell 11.6% to 19,900 units; the acquired ARI manufacturing business partly offset the decline. Manufacturing operating profit decreased 9.3% to $197.4 million.
- Wheels, Repair & Parts revenue fell 27.0%, reflecting lower demand and volumes, five fewer repair shops, and lower scrap-metal prices. The segment returned to operating profit of $9.0 million from a $2.9 million loss, helped by shop efficiencies and the absence of FY2019’s $10.0 million goodwill impairment.
- Leasing & Services revenue fell 25.4%, mainly because of fewer sales of third-party railcars. Segment operating profit declined 36.8% to $40.9 million, including an $18.4 million decrease in net gain on equipment dispositions. Owned-fleet utilization was 90.4%, down from 93.3%.
- Consolidated margin improved to 12.6% from 12.1%, primarily because Leasing & Services had fewer lower-margin third-party railcar sales and higher interim rent on cars intended for syndication. Higher interest and foreign-exchange expense, lower equipment-disposition gains, and ARI integration costs weighed on earnings.
- Railcar backlog declined to 24,600 units valued at an estimated $2.42 billion from 30,300 units and $3.28 billion. Marine backlog was $51 million, down from $100 million. Approximately 13,500 railcars in the year-end backlog were scheduled for FY2021 delivery.
Outlook, risks, and unusual items
- Management described a rail-freight downturn that began before COVID-19 and intensified during the pandemic. Facilities remained operational under essential-infrastructure status and enhanced safety protocols, but management said the timing and scale of future effects could not be predicted. The filing provides no quantified earnings or revenue guidance.
- Management said cost reductions, lower overhead and capital spending, and workforce reductions—from approximately 17,100 to 10,600 employees—helped preserve liquidity. It reported $15 million in ARI acquisition synergies and stated that the company was positioned to respond to a recovery; this outlook is subject to uncertain demand and backlog conversion.
- Customer cancellations or delays, lower railcar demand and lease utilization, supplier constraints, input costs, and customer concentration are key risks. Two customers represented approximately 26% of FY2020 revenue.
- Portland Harbor Superfund remediation is a material unresolved contingency. The EPA’s estimated cleanup cost for the entire site is $1.7 billion, but Greenbrier states it cannot determine its liability or estimate a potential loss; the estimate is not the company’s allocated share. Related litigation is stayed until January 2022. The company also faces a separate Oregon DEQ investigation and possible remediation costs.
- Greenbrier assumed potential legacy railcar retrofit and repair obligations in the ARI acquisition and says their possible impact cannot currently be determined. Goodwill impairment testing found no impairment in FY2020, but fair value for the Europe Manufacturing and Wheels & Parts reporting units exceeded carrying value by only approximately 5% and 9%, respectively.
- FY2020 included adoption of the lease accounting standard, which added operating lease right-of-use assets and liabilities; the accounting change increased retained earnings by $4.4 million. The independent auditor issued unqualified opinions on the financial statements and internal controls and identified valuation of the European Manufacturing reporting unit and Greenbrier-Astra Rail as a critical audit matter.
Important facts for investors to verify
- Whether the $2.42 billion railcar backlog converts to deliveries and revenue as scheduled, and how cancellations, product mix, and pricing affect its value.
- Whether demand recovery, customer fleet utilization, and the 90.4% owned-railcar lease rate stabilize or deteriorate further.
- Cash generation and liquidity quality, including the contribution from working-capital releases and the company’s ability to manage $1.156 billion of reported borrowings and upcoming maturities.
- Progress on ARI integration and cost savings, and performance in manufacturing, repair, and leasing as volumes change.
- Developments in Portland Harbor cost allocation, remedial design, and the DEQ investigation; the company’s ultimate exposure remains unclear in the filing.
- Customer concentration, debt covenant headroom, and potential conversion-related dilution from outstanding convertible notes.