GATX Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. GATX leases, operates, manages and remarkets assets, primarily in rail and marine markets, and reports four segments: Rail North America, Rail International, American Steamship Company (ASC) and Portfolio Management.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $365.3 million | $365.8 million | $685.0 million | $652.4 million |
| Net income | $45.4 million | $53.1 million | $107.6 million | $95.2 million |
| Diluted EPS | $1.03 | $1.15 | $2.42 | $2.05 |
| Operating cash flow | Not separately stated for quarter | $191.5 million | $168.1 million |
- For the first half, lease revenue rose to $558.9 million from $524.9 million. Net gains on asset dispositions were $54.0 million, versus $56.3 million.
- Q2 net income fell $7.7 million, mainly because of lower asset remarketing income and affiliate earnings; lower maintenance and operating lease expense partly offset the decline. First-half net income rose $12.4 million, supported by the boxcar acquisition, higher lease rates and lower operating lease expense.
- Net interest expense was $79.4 million for the first half, down from $81.5 million. The filing does not present a consolidated operating-margin measure.
- At June 30, cash and cash equivalents were $58.6 million, down from $209.9 million at year-end. Total debt was $4.228 billion, compared with $4.274 billion; shareholders’ equity was $1.285 billion, compared with $1.314 billion.
- Investing activities used $220.4 million in the first half. Portfolio investments and capital additions were $356.2 million, versus $655.1 million in the prior-year period. Dividends paid were $35.2 million and share repurchases were $64.1 million.
Material changes and segment results
- Rail North America: First-half segment profit increased to $190.7 million from $166.7 million; Q2 profit declined to $84.9 million from $91.7 million, mainly on lower disposition gains and affiliate earnings. Non-boxcar utilization was 99.3%; boxcar utilization improved to 97.3% from 90.7% a year earlier.
- Rail International: First-half profit was $40.9 million, compared with $40.1 million. A weaker euro reduced first-half lease revenue by about $17.5 million and segment profit, excluding other income and expense, by about $9.2 million.
- ASC: First-half profit was $2.5 million, versus $1.9 million, but Q2 profit edged down to $2.9 million from $3.1 million. Lower shipments of higher-rate iron ore and a delayed Great Lakes sailing season weighed on results.
- Portfolio Management: First-half profit rose to $26.2 million from $23.4 million; Q2 profit declined to $10.3 million from $11.5 million, including lower affiliate earnings.
Liquidity, outlook, risks and contingencies
- GATX reported $3.8 million in short-term borrowings and the full $575 million U.S. revolving credit facility available at June 30. The facility maturity was extended to April 2020. The company reported compliance with all debt covenants; ratings outlooks were stable.
- First-half debt issuance proceeds were $689.0 million; debt repayments, including short-term borrowings, were $713.3 million. Management said operating cash flow increased year over year, partly due to higher lease revenue and lower maintenance expense.
- Management expected North American Railcar Lease Price Index renewal changes in the mid-30% range for the remainder of 2015, while noting potential pricing volatility. ASC expected to recover some lost iron ore volume in the second half but forecast full-year segment profit below 2014.
- New U.S. and Canadian tank-car rules require phased modification or removal of certain cars from flammable-liquid service. GATX had about 14,000 North American tank cars used for flammable liquids; it had not determined how many would be modified, repurposed or retired. The company said fewer than 1,400 of its North American cars required modification or retirement before 2023.
- In the Viareggio derailment proceedings in Italy, the company said it could not estimate a possible loss and recorded no accrual. Approximately $9.6 million of defense costs remained unreimbursed at June 30; an insurer arbitration hearing was scheduled for November 2015. Insurers were expected to cover any civil damages awarded, according to the filing.
- Other stated risks include economic and market weakness, reduced demand for petroleum-related railcars amid sustained low crude prices, regulatory and maintenance costs, foreign-exchange movements, financing conditions, asset impairment, litigation and environmental costs. The filing provided no consolidated earnings guidance.
Most important facts for investors to verify
- Whether railcar renewal pricing and high utilization persist, and whether boxcar utilization continues to improve.
- The eventual fleet, capital-cost and operating effects of tank-car regulation, including cars requiring modification or retirement.
- ASC’s second-half iron ore volumes and full-year profit relative to management’s below-2014 outlook.
- Liquidity and debt maturity management given lower cash balances, significant contractual commitments and ongoing investment needs.
- Outcome of the Viareggio trial and insurance arbitration, including recovery of defense costs and any eventual liability.