Greenbrier Companies, Inc. — Form 10-Q Summary
Business context and reporting period. The filing covers the fiscal third quarter and nine months ended May 31, 2013. Greenbrier operates in railcar manufacturing, Wheels, Repair & Parts, and Leasing & Services. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $433.7m | $507.8m | $1,272.2m | $1,364.2m |
| Segment margin | $50.0m | $61.9m | $146.1m | $159.9m |
| Operating income (loss) | ($47.1m) | $35.7m | $2.4m | $91.8m |
| Net income (loss) attributable to Greenbrier | ($56.0m) | $19.1m | ($31.8m) | $51.3m |
| Diluted EPS | ($2.10) | $0.61 | ($1.20) | $1.65 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $19.2m | $53.6m |
- Consolidated segment margin was 11.5% of revenue in Q3, versus 12.2% a year earlier; for nine months, it was 11.5%, versus 11.7%.
- Q3 segment margins as a percentage of segment revenue: Manufacturing 11.0% (prior year 10.8%); Wheels, Repair & Parts 8.2% (10.8%); Leasing & Services 45.2% (50.2%). Nine-month rates were 10.4% (10.1%), 8.5% (10.7%), and 49.9% (48.2%), respectively.
- At May 31, cash and cash equivalents were $31.6m, down from $53.6m at August 31, 2012; restricted cash was $8.9m. Operating cash flow fell year over year, which management attributed mainly to working-capital timing and timing of railcar syndication sales. Capital expenditures were $49.7m for nine months.
- Revolving notes were $93.0m and notes payable $372.9m, versus $60.8m and $428.1m at August 31, 2012. Total of these reported borrowings was $465.9m. The company reported $258.7m available under committed facilities. Total equity was $430.3m, down from $453.6m.
Material changes and operating developments
- Revenue declined 14.6% in Q3 and 6.7% for nine months, primarily due to lower manufacturing revenue and railcar deliveries. Manufacturing delivered about 2,500 railcars in Q3 versus 4,500; nine-month deliveries were about 8,100 versus 11,500.
- Manufacturing revenue fell $80.3m in Q3 and $83.8m for nine months. Lower deliveries reflected product mix, tank-car production ramp-up inefficiencies, weaker-than-expected demand for some products, and lower syndication activity. Favorable mix and higher average selling prices partly offset these factors.
- Wheels, Repair & Parts margin weakened, with the filing citing lower wheel volumes, underperforming facilities, and changes to scrap-disposition contracts. The company recorded a $1.9m cost-of-revenue charge to correct prior-period balance-sheet errors at one location; management said the adjustments were not material to prior periods or the current period.
- A non-cash $76.9m goodwill impairment was recorded in Q3 for Wheels, Repair & Parts, driven primarily by lower comparable-company market multiples and updated cash-flow estimates. Remaining goodwill was $57.4m.
- In May, Greenbrier retired $52.9m of its convertible notes under a put option; $14.9m of those notes remained outstanding at May 31.
Outlook, risks, contingencies, and unusual items
- Manufacturing backlog was about 14,200 railcars valued at $1.57bn at May 31, compared with 11,500 units and $1.14bn a year earlier. Subsequent to quarter end, Greenbrier received orders for 2,100 railcars valued at $153m, subject to customary documentation and final terms. Management cautioned backlog is not necessarily indicative of future results.
- Marine backlog was approximately $1.6m, compared with $25.9m a year earlier. A letter of intent for 15 barges valued at $60m remained subject to significant permitting and other conditions.
- After quarter end, the company announced plans to sell or close eight Wheels, Repair & Parts facilities and improve profitability and capital efficiency at six others. It anticipates $3m–$5m of pre-tax cash restructuring charges over the next two to three quarters, excluding disposition gains or losses.
- A June 2013 strike at the Sahagun, Mexico facility disrupted production for about three weeks and could reduce fourth-quarter deliveries by up to 150 railcars. A settlement was reached between the union and third-party employer; management did not expect a material cost-of-goods-sold impact.
- Management expected cash, operating cash generation, and available financing to fund working capital, planned capital expenditures, and expected debt repayments for the next 12 months. Expected 2013 capital expenditures were approximately $62m across the segments; expected proceeds from leased-railcar sales were about $37m.
- Portland Harbor Superfund investigation and remediation exposure remains unquantified. Draft cleanup alternatives estimated $9m–$163m for the area adjacent to Greenbrier’s facility; these are site-area estimates, not an estimate of Greenbrier’s share. The filing says responsibility has not been allocated and the company cannot estimate its potential liability.
- Other disclosed exposures include a $40.1m company guarantee of Mexican joint-venture debt, a $10m joint-venture capital commitment shared equally with its partner (each had contributed $3.9m by May 31), and unresolved customer warranty disputes. Management did not expect the cited litigation to have a material adverse effect.
- Principal risks include cyclical railcar demand, cancellations or delays, production and supplier constraints, steel and component costs, customer concentration, access to credit and covenant compliance, foreign-exchange and interest-rate exposure, environmental liabilities, and warranty or litigation costs. The filing reports no material change to the risk factors in the 2012 Form 10-K.
Important facts for investors to verify
- Whether railcar order backlog converts into deliveries and revenue, particularly after the Mexico production interruption and given the stated conditions on subsequent orders.
- Whether Wheels, Repair & Parts restructuring improves margins and cash efficiency, and whether additional impairment or restructuring charges arise.
- The eventual scope, timing, and allocation of Portland Harbor cleanup costs, which Greenbrier says cannot currently be estimated.
- Liquidity and covenant headroom, facility renewals, and the company’s ability to meet planned investment and debt obligations as cash declined and operating cash flow weakened.
- Whether the $1.9m accounting correction, warranty estimates, and unresolved railcar claims require further adjustments or disclosures.