Business Context and Reporting Period
Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 30, 2010
Business Overview: Greenbrier operates in three integrated segments: Manufacturing (railcars and marine vessels), Wheel Services, Refurbishment & Parts, and Leasing & Services. The company serves the rail and marine industries, which are cyclical in nature. Management noted early signs of recovery in freight car markets, though marine barge demand remains soft.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 (Nov 30, 2010) | Q1 2010 (Nov 30, 2009) |
|---|---|---|
| Total Revenue | $201,444 | $171,693 |
| Net Loss (Consolidated) | $(2,052) | $(3,361) |
| Net Loss Attributable to Greenbrier | $(2,304) | $(3,244) |
| Loss Per Share (Diluted) | $(0.11) | $(0.19) |
| Operating Cash Flow | $(47,446) | $5,097 |
| Cash and Cash Equivalents | $49,247 | $65,393 |
| Total Debt (Notes Payable + Revolving) | $509,166 | $501,330 |
| Working Capital (Current Assets - Current Liab) | $(13,363) | $(12,956) |
Note: Working Capital calculated as (Cash + Restricted Cash + AR + Inventory + Assets Held for Sale) minus (Revolving Notes + AP/Accrued + Deferred Revenue + Current portion of Notes Payable if applicable). The filing shows a negative working capital position driven by high inventory and assets held for sale relative to current liabilities.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by $29.7 million (17.3%) year-over-year, driven primarily by a $25.3 million increase in Manufacturing revenue due to higher railcar deliveries (approx. 1,050 units vs. 350 units in the prior year).
- Profitability Improvement: Net loss attributable to Greenbrier narrowed by $0.9 million. Loss per share improved from $(0.19) to $(0.11).
- Cash Flow Deterioration: Operating cash flow swung from a positive $5.1 million in the prior year to a negative $47.4 million. This was primarily due to a significant increase in working capital requirements (inventory build-up of $39.5 million and assets held for sale of $44.5 million) as production ramped up.
- Segment Performance:
- Manufacturing: Margin decreased slightly to 6.7% from 7.0% due to inefficiencies in ramping up idled facilities and lower marine production.
- Wheel Services: Margin improved to 11.0% from 10.4%, aided by a $1.9 million gain on insurance proceeds from a 2009 fire and favorable scrap pricing.
- Leasing: Margin increased significantly to 51.6% from 41.4%, driven by higher rents on assets held for sale and maintenance reserve adjustments.
Guidance, Outlook, and Risks
Outlook and Backlog:
- Railcar Backlog: Approximately 8,100 units valued at $580 million as of November 30, 2010, up from 4,900 units ($430 million) a year prior. Subsequent to quarter-end, the company received new orders for 1,900 units valued at $130 million.
- Marine Backlog: Remained soft at approximately $10.0 million, down significantly from $96.0 million in the prior year.
- Capital Expenditures: Expected to be approximately $40.0 million for Leasing & Services, $19.0 million for Manufacturing, and $28.0 million for Wheel Services in fiscal 2011.
Subsequent Events:
- Sold 3,000,000 shares of common stock in an at-the-market offering for net proceeds of approximately $62.9 million.
- Modified the Greenbrier-GIMSA LLC joint venture agreement, extending the term to 2019 and adjusting revenue-based fees.
Risks and Contingencies:
- Environmental Liability: Ongoing remediation and investigation at the Portland Harbor Site (Superfund site). The company is unable to determine the ultimate liability at this time.
- Litigation: Active arbitration with SEB Finans AB regarding defective railcar components; management believes accrued amounts are sufficient. Ongoing claims from Okombi GmbH regarding structural cracks in freight cars.
- Commodity Prices: Significant exposure to steel and scrap steel price fluctuations, though the integrated business model provides some natural hedging.
- Liquidity: High level of indebtedness ($500 million in notes payable) with covenants limiting additional borrowing, dividends, and stock repurchases.
Investor Verification Checklist
- Inventory Build-up: Verify the sustainability of the $39.5 million increase in inventory and the $44.5 million increase in assets held for sale, which drove the negative operating cash flow.
- Backlog Conversion: Monitor the conversion rate of the $580 million railcar backlog into revenue, noting that contracts may be subject to cancellation or mix changes.
- Environmental Exposure: Track the progress of the Portland Harbor Site remediation study and potential cost allocations among the 130+ responsible parties.
- Debt Covenants: Confirm compliance with debt covenants regarding debt-to-capitalization and interest coverage ratios, especially given the high debt load.
- Insurance Proceeds: Assess the one-time nature of the $1.9 million insurance gain in the Wheel Services segment and its impact on normalized margins.