GATX Corporation — Q1 2013 Form 10-Q
Business and period: GATX leases, operates, manages, and remarkets assets primarily in rail and marine markets. This unaudited report covers the three months ended March 31, 2013; results are not necessarily indicative of the full year, in part because Great Lakes shipping and asset remarketing are seasonal or uneven.
Key financial results
- Revenue: $272.3 million, up 6.2% from $256.5 million. Lease revenue rose to $237.2 million from $225.5 million.
- Profit and margins: Net income was $27.1 million versus $30.3 million; diluted EPS was $0.57 versus $0.64. Net margin, calculated as net income divided by revenue, was approximately 10.0% versus 11.8%. The filing does not separately present a consolidated operating-margin measure.
- Adjusted results: Excluding losses on AAE interest-rate swaps, net income was $28.4 million versus $32.5 million and diluted EPS was $0.60 versus $0.69. These are non-GAAP measures.
- Cash flow: Operating cash flow was $24.2 million, down from $28.2 million. Investing used $85.3 million versus $43.5 million; financing provided $148.4 million versus using $91.1 million. Cash increased $86.9 million to $321.1 million.
- Debt and liquidity: Total reported debt was $3.742 billion, up from $3.568 billion at year-end 2012; recourse debt was $3.484 billion. Unrestricted cash was $321.1 million. At quarter-end, the prior $560 million revolver had $550.3 million available, with $9.7 million of letters of credit outstanding. A new $575 million, five-year revolver was signed April 30, 2013.
- Other measures: Total assets were $6.145 billion and shareholders’ equity was $1.224 billion. Dividends declared were $0.31 per share. GATX repurchased 368,612 shares for $18.3 million during the quarter.
Material changes versus Q1 2012
- Revenue increased, but total expenses rose to $220.8 million from $203.3 million. Maintenance expense rose to $66.7 million from $60.9 million, partly reflecting regulatory compliance work.
- Net gains on asset dispositions fell to $16.7 million from $28.0 million, mainly due to the timing of remarketing activity. Management attributed lower comparable adjusted earnings primarily to weaker remarketing activity and higher maintenance costs, substantially offset by higher lease revenue.
- Segment profit was broadly flat overall: Rail International improved to $18.6 million from $7.9 million, while Portfolio Management declined to $12.5 million from $22.0 million. Rail North America was nearly unchanged at $50.3 million; ASC fell to $0.8 million from $2.1 million.
- Rail North American railcar utilization was 97.8%, versus 98.5% a year earlier; the renewal rate for cars in the company’s Lease Price Index was 30.8% above expiring rates. Rail Europe utilization was 95.5%, versus 96.7%.
Outlook, risks, and unusual items
- Management expected asset remarketing gains to increase later in 2013, citing strong demand, while noting that such gains vary materially by quarter. It planned to pursue higher railcar renewal rates and longer lease terms. The filing gives no consolidated earnings or revenue guidance.
- Railcar compliance work was expected to increase through the remainder of 2013. ASC expected modestly lower full-year freight volume than 2012 and planned to deploy 13 vessels versus 14; record-low Great Lakes water levels could reduce per-trip loads and increase costs.
- Risks identified include economic and market conditions, lease pricing and utilization, financing costs and credit ratings, regulatory and maintenance costs, railcar purchase commitments, international operations, asset impairment, remarketing opportunities, labor relations, and litigation.
- Viareggio derailment: Italian prosecutors sought indictments against GATX Rail Austria and employees in connection with the 2009 fatal derailment. Civil claims and insurance coverage matters remained ongoing. GATX said it could not reasonably estimate potential loss and recorded no accrual.
- Subsequent events: In April, GATX sold its Singco and Somargas marine affiliates, contributed $90 million to the affiliates, received five vessels and working capital, and terminated $42 million of related guarantees.
- Commercial commitments totaled $96.7 million at quarter-end; the company said it knew of no event requiring performance. GATX reported compliance with credit covenants and stable BBB (S&P) and Baa2 (Moody’s) long-term ratings.
Important facts for investors to verify
- Whether the expected later-year recovery in remarketing gains materialized and how much it contributed to earnings.
- Railcar compliance costs, utilization, renewal pricing, and demand in weaker coal, grain, and European freight markets.
- ASC’s operating costs and freight results given low water levels, delays, and its seasonal first-quarter pattern.
- Debt maturities, access to funding, covenant compliance, and the terms and availability of the replacement revolving facility.
- Potential exposure from the Viareggio proceedings, insurance reimbursement, and the April marine-affiliate sale and related contribution.