Trinity Industries, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Trinity operates railcar leasing and management, rail products manufacturing and services, and highway products businesses.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $371.5 million | $509.2 million | $770.3 million | $1,124.4 million |
| Operating profit (loss) | $67.4 million | $(307.3) million | $127.6 million | $(234.3) million |
| Net income (loss) attributable to Trinity | $12.7 million | $(206.9) million | $16.0 million | $(45.2) million |
| Diluted EPS | $0.12 | $(1.76) | $0.15 | $(0.38) |
| Operating cash flow, continuing operations | Not separately provided | Not separately provided | $335.1 million | $327.8 million |
Q2 2021 consolidated operating margin was approximately 18.1%; six-month margin was approximately 16.6%. Prior-year operating results included a $369.4 million impairment charge, so the year-over-year profit comparison is not like-for-like. Consolidated net income was $4.8 million in Q2 and $6.1 million for six months; attributable income was higher because of losses allocated to noncontrolling interests.
- Revenue and segments: Q2 revenue declined 27.0% and six-month revenue declined 31.5%. Lower Rail Products deliveries were a major factor. Rail Products Group six-month revenue fell 42.9%; Leasing Group revenue fell 14.1%, affected in part by a change in presentation of lease-fleet railcar sales. All Other revenue increased 10.2% for six months.
- Margins and operations: Leasing Group operating profit was $81.1 million in Q2, down 2.2%, and $159.4 million for six months, down 9.3%; management cited lower lease rates, higher fleet-management costs, and slightly lower utilization. Fleet utilization was 94.3%, versus 94.7% a year earlier. Rail Products Group reported a $5.6 million operating loss for six months, versus $33.0 million profit in 2020.
- Cash and liquidity: Cash and cash equivalents were $91.0 million at June 30, versus $132.0 million at year-end; restricted cash was $164.7 million. Total available liquidity was $917.9 million, including $361.1 million available on the corporate revolver and $465.8 million under the TILC warehouse facility, subject to eligible unpledged collateral. Six-month investing cash use was $173.0 million and financing cash use was $134.4 million. Management reported non-GAAP Free Cash Flow After Investments and Dividends of $358.9 million for six months; it is not a GAAP cash-flow measure.
- Debt: Total debt was $5.288 billion, up from $5.017 billion at December 31, 2020; $448.4 million was recourse and $4.840 billion non-recourse. Trinity reported compliance with financial covenants; actual maximum leverage was 2.50 versus a 4.50 limit, and interest coverage was 4.92 versus a 1.50 minimum.
Changes, outlook, and material items
- In June, leasing subsidiaries issued new green secured railcar notes and refinanced older debt. The refinancing generated an $11.7 million debt-extinguishment loss, including an early-redemption premium and write-off of issuance costs. Certain subsidiary obligations are non-recourse to Trinity.
- Trinity repurchased 11.8 million shares for approximately $327.6 million during the first half, including 8.1 million shares bought from ValueAct for $222.5 million. It paid $47.4 million in dividends.
- Railcar backlog was $1.178 billion, down 11.9% year over year; orders rose to 5,980 railcars in the first half while deliveries were 3,660. Management expects 48.8% of backlog value to deliver during the remainder of 2021, with the rest through 2024.
- For full-year 2021, management anticipates $200–$250 million of net investment in the lease fleet and $45–$55 million of manufacturing and other capital expenditures. No broader earnings or revenue guidance is provided in the supplied filing text.
- Management said COVID-19 and economic pressures continued to affect results and anticipated near-term pressure, despite signs of recovery. Railcar lease rates and utilization remained under pressure; sharply higher steel prices could weigh on new-car demand and near-term manufacturing profit. Results are cyclical and may also be affected by customer credit, supply costs, interest rates, and COVID-19 developments.
- Highway-products litigation remains a contingency. The Missouri class action has a trial date of April 4, 2022; state qui tam actions also remain pending. The company said loss was not considered probable for the cited state actions, recorded no accrual for them, and could not estimate a loss range. Other matters had a reasonably possible loss range of $10.9–$19.1 million, including estimated indemnity and third-party recourse.
- A March tornado damaged a Georgia maintenance facility. The facility resumed operations in Q2; management believes insurance covers property damage, but possible business-interruption recoveries will not be recorded until settlement.
Comparability note: Since Q4 2020, lease-fleet railcar sales are presented as net gains or losses regardless of railcar age. The change was prospective and did not affect operating profit, net income, EPS, or the balance sheet, but it affects revenue comparisons with 2020.
Investor verification priorities
- Assess whether lower Rail Products deliveries, the backlog mix, steel costs, and the recovery in orders support improved manufacturing results.
- Track lease rates, fleet utilization, fleet-management costs, and lease portfolio sale margins.
- Review the sustainability of reported cash generation, including the contribution from tax refunds and lease-portfolio proceeds, and the assumptions behind non-GAAP Free Cash Flow.
- Evaluate total debt, subsidiary collateral and non-recourse structures, available borrowing capacity, and exposure of LIBOR-linked agreements to benchmark transition.
- Monitor the highway-products litigation, other contingencies, and insurance settlement for the tornado-related damage and interruption.