Greenbrier Companies, Inc. — Q3 FY2015 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2015. Amounts below are in millions of dollars except per-share data, percentages, and where noted. Comparative periods ended May 31, 2014.
Business context
Greenbrier manufactures railcars and marine vessels, supplies wheels and parts, and provides railcar leasing and management services. Its former repair operations were contributed to GBW, an unconsolidated 50/50 joint venture with Watco, in July 2014; accordingly, repair revenue is no longer consolidated and Greenbrier recognizes its share of GBW earnings under the equity method.
Financial performance
| Metric | Q3 FY2015 | Q3 FY2014 | Nine months FY2015 | Nine months FY2014 |
|---|---|---|---|---|
| Revenue | $714.6 | $593.3 | $1,839.8 | $1,585.9 |
| Margin | $149.3; 20.9% | $96.8; 16.3% | $362.7; 19.7% | $216.2; 13.6% |
| Operating earnings | $104.4 | $67.5 | $251.4 | $140.4 |
| Net earnings attributable to Greenbrier | $42.8 | $33.6 | $125.9 | $64.6 |
| Diluted EPS | $1.33 | $1.03 | $3.91 | $2.01 |
| Operating cash flow | Not separately provided | Not separately provided | $29.6 | $81.7 |
Q3 revenue rose 20.4% year over year, principally on a 39.4% increase in Manufacturing revenue and 33% more railcar deliveries. Manufacturing margin improved to 21.5% from 17.3%, supported by pricing, production efficiencies, favorable currency effects, and mix. Wheels & Parts revenue fell 30.8%, primarily reflecting the transfer of repair operations to GBW; Leasing & Services revenue declined 11.9%. For the nine-month period, Manufacturing revenue increased 30.5%, while Wheels & Parts fell 26.6% and Leasing & Services increased 19.4%. Higher margins were the main driver of earnings growth.
Cash, debt, and liquidity
- Cash and cash equivalents were $122.8 at May 31, 2015, down from $184.9 at August 31, 2014; restricted cash was $8.9.
- Nine-month operating cash flow was $29.6, versus $81.7 a year earlier. Working-capital investment included $124.9 of inventory and $90.9 of railcars for syndication. Investing activities used $100.2, including $75.9 of capital expenditures.
- Balance-sheet revolving notes were $92.5 and notes payable were $346.3, or $438.8 combined, compared with $458.2 at August 31, 2014. The reduction in notes payable included conversion of $93.1 principal of convertible notes into 2.5 million shares; $136.9 of those notes remained outstanding and mature in April 2018.
- Management reported $203.9 of availability under committed credit facilities. The principal North American $290.0 revolving line matures in June 2016; facilities are subject to borrowing-base limits and financial covenants.
- Total equity was $783.0, including $110.6 of noncontrolling interest. Nine-month dividends paid were $12.1; the company declared a $0.15-per-share quarterly dividend on June 30, 2015.
Outlook, commentary, and risks
- Railcar manufacturing backlog at May 31 was approximately 45,100 units valued at $4.86 billion, versus 26,400 units and $2.75 billion a year earlier. Marine backlog was $70 million, down from $110 million. The company cautioned that backlog is not necessarily indicative of future results and that product mix and delivery timing can change.
- Management expected FY2015 Manufacturing capital expenditures of approximately $95 million, principally for facility improvements and Mexican capacity expansion; Leasing & Services and corporate capex of approximately $11 million; and Wheels & Parts capex of approximately $10 million. Management said existing funds, operating cash flow, and financing were expected to cover the next 12 months’ needs, including planned investment in GBW.
- Greenbrier expected to lend GBW up to an additional $7 million in Q4 FY2015 and noted that further loans or capital contributions could be made. At May 31, it had a $7.5 million note receivable and $21.0 million account receivable from GBW.
- S&A rose 31% in Q3, including $5.8 million of professional and transaction costs for a potential acquisition, $3.3 million of increased employee costs, and $1.7 million related to advocacy for new tank-car regulations. Discussions on the potential acquisition were terminated after quarter-end. Nine-month S&A also included $1.9 million of legal, accounting, and consulting costs related to an investigation at the Concarril facility.
- The Portland Harbor Superfund investigation remains ongoing. Greenbrier said it could not determine its potential remediation liability or estimate a loss range; the draft study estimated $9 million to $163 million for cleanup of the area adjacent to its property, not Greenbrier’s allocated share. Further investigation, remediation, natural-resource damages, or limits on dredging and launch activity could adversely affect the company.
- Other principal risks include railcar and marine demand cycles, order cancellations or delays, steel and component prices and availability, manufacturing execution, customer concentration, foreign exchange and interest rates, credit-facility covenants, warranty claims, and environmental or other litigation. The filing reported no material change to the risk factors in the 2014 Form 10-K.
Important facts for investors to verify
- Whether the large railcar backlog converts to deliveries, revenue, and cash flow on expected timing and margins.
- Whether working-capital use—particularly inventory and railcars held for syndication—moderates, and whether operating cash flow improves.
- Current revolver availability, covenant compliance, and refinancing plans ahead of the June 2016 North American facility maturity.
- GBW’s operating results, cash requirements, and repayment of Greenbrier receivables and loans.
- Developments in the Concarril investigation and Portland Harbor environmental proceedings, including any estimable company-specific exposure.