Greenbrier Companies, Inc. — Q2 FY2016 Form 10-Q
Reporting period: Quarter and six months ended February 29, 2016. Financial statements are unaudited; amounts below are in U.S. dollars. The company manufactures railcars and marine vessels and operates wheels-and-parts, leasing-and-services, and joint-venture repair businesses.
Financial performance
| Metric | Three months ended Feb. 29, 2016 | Year-over-year change | Six months ended Feb. 29, 2016 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $669.1 million | +6.2% | $1,471.5 million | +30.8% |
| Margin | $119.9 million; 17.9% of revenue | 19.9% prior-year margin rate | $304.7 million; 20.7% of revenue | 19.0% prior-year margin rate |
| Earnings from operations | $92.4 million | $92.5 million prior year | $240.9 million | $147.0 million prior year |
| Net earnings attributable to Greenbrier | $44.9 million | −10.9% | $114.3 million | +37.5% |
| Diluted EPS | $1.41 | $1.57 prior year | $3.55 | $2.57 prior year |
- Quarterly consolidated revenue rose despite manufacturing revenue falling 10.0% and Wheels & Parts revenue falling 11.9%. Leasing & Services revenue increased sharply, primarily reflecting the sale of acquired railcars.
- For the six-month period, manufacturing revenue increased 30.3% as deliveries rose 25% to 11,500 units and product mix and production efficiencies supported margins. Wheels & Parts revenue declined 10.6%, reflecting lower volumes and scrap-metal pricing.
- Quarterly earnings attributable to Greenbrier declined even as consolidated net earnings increased to $66.2 million from $61.0 million; earnings attributable to noncontrolling interests rose to $21.3 million from $10.7 million. Six-month earnings attributable to noncontrolling interests were $50.6 million versus $13.9 million.
Cash flow, balance sheet and liquidity
- Cash and cash equivalents were $283.5 million at February 29, 2016, up from $172.9 million at August 31, 2015. Six-month operating cash flow was $149.3 million, compared with cash used of $7.8 million a year earlier.
- Investing activities provided $50.1 million, including $80.5 million of asset-sale proceeds, while capital expenditures were $28.0 million. Financing activities used $79.4 million, including $33.2 million for repurchases, $11.6 million for dividends, and $53.5 million in cash distributions to a joint-venture partner.
- Revolving notes were $75.0 million and notes payable were $322.5 million at quarter-end, for total reported borrowings of approximately $397.5 million. The company reported $297.4 million available under committed credit facilities and was in compliance with its debt covenants.
- Total assets were $1.87 billion and total equity was $932.2 million. The company said existing funds, operating cash generation and available financing were expected to cover dividends, working capital, planned capital spending, GBW investments and debt repayments over the next 12 months.
Material changes, outlook and key items
- Railcar manufacturing backlog was approximately 34,100 units valued at $3.96 billion, down from 46,000 units and $4.78 billion a year earlier. Marine backlog was $18 million versus $78 million. The filing cautions that backlog may not convert to revenue on a particular schedule, or at all.
- Management expected 2016 capital expenditures of approximately $55 million for Manufacturing, $30 million for Leasing & Services and corporate, and $8 million for Wheels & Parts. Expected proceeds from sales of leased railcars were approximately $81 million. The filing provides no specific full-year earnings or revenue guidance.
- Related-party railcar transaction: In September 2015, Greenbrier bought 3,885 railcars from a WL Ross affiliate for approximately $148 million plus a $1 million fee. In the quarter, it sold 2,567 cars with attached leases for $123.8 million; it recognized $100.3 million of revenue and deferred $23.5 million because of continuing involvement. Greenbrier accrued $14.1 million for the affiliate’s anticipated share of profits under the arrangement.
- Environmental contingency: Greenbrier is among parties potentially responsible for the Portland Harbor Superfund site. The company said its ultimate liability, if any, could not yet be determined or estimated. EPA’s 2015 draft study estimated total site cleanup costs of $790 million to $2.4 billion; the filing says the EPA was revising that study and had not allocated costs among parties.
- Other notable risks include cyclic demand for railcars and repair services, backlog cancellations or delays, steel and component costs, production and supplier issues, foreign exchange and interest-rate exposure, warranty claims, and financing availability. Management reported no material change to the risk factors in the 2015 Form 10-K and said disclosure controls were effective.
- For the quarter, a $10.7 million net gain on disposition of equipment supported operating results. A quarterly dividend of $0.20 per share was declared March 30, 2016. The company had repurchased 1.05 million shares for $32.4 million during the six months and had approximately $88.0 million remaining under its repurchase authorization.
Most important facts for investors to verify
- How much of the related-party railcar-sale revenue, deferred revenue and accrued profit share ultimately converts to cash and earnings, and on what timeline.
- Whether backlog converts to deliveries and revenue as expected, given the lower year-over-year railcar and marine backlogs and the company’s delivery and cancellation risks.
- The sustainability of manufacturing margins and the extent to which leasing, equipment dispositions and other transactions affect reported earnings and cash flow.
- Developments in Portland Harbor remediation, including the final EPA cleanup plan, allocation of responsibility and any estimable Greenbrier exposure.
- Liquidity and covenant headroom as credit facilities renew or mature, alongside planned capital expenditures, share repurchases, dividends and expected support for GBW.