Trinity Industries, Inc. — Q1 2011 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2011, compared with Q1 2010. Trinity operates railcar, construction products, inland barge, energy equipment, and railcar leasing businesses, principally in North America. Management cautions that interim results may not indicate full-year results because of seasonal and other factors.
Financial performance
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $644.2 million | $454.0 million |
| Operating profit | $85.5 million | $52.0 million |
| Operating margin | 13.3% | 11.5% |
| Net income attributable to Trinity | $24.2 million | $2.0 million |
| Diluted EPS | $0.30 | $0.02 |
| Operating cash flow | $(11.5) million | $(16.5) million |
- Revenue increased 41.9% year over year, and operating profit rose $33.5 million. Manufacturing revenue grew to $514.4 million from $332.8 million; leasing revenue was $129.8 million, versus $121.2 million.
- Interest expense was $44.5 million, versus $45.7 million. The effective tax rate was 38.8%, versus 12.2%; the prior-year rate benefited from Mexican tax-reserve releases and settlements.
- Q1 operating cash use reflected higher receivables and inventories, which increased $75.6 million and $82.2 million, respectively. Investing cash use was $35.6 million, including $89.5 million of capital expenditures ($81.5 million for leasing). Financing cash use was $46.6 million, including $42.8 million of debt retirement and $6.3 million of dividends.
- At March 31, cash and cash equivalents were $260.3 million and short-term marketable securities were $117.0 million; together, $377.3 million, down from $512.0 million at year-end. Restricted cash was a further $206.0 million.
- Total debt was $2.868 billion, down from $2.908 billion at December 31, 2010: $451.3 million recourse and $2.416 billion non-recourse. The $425 million revolving facility had no borrowings; $343.2 million remained available after letters of credit. Trinity reported compliance with its covenants.
Changes and business developments
- Rail Group revenue rose 198.6% to $219.8 million and operating profit improved to $9.3 million from a $7.9 million loss, primarily on higher railcar shipments. Shipments were approximately 2,240 cars versus 500. Backlog reached $1.807 billion, including 22,490 cars, compared with $247.7 million and 2,980 cars a year earlier.
- Railcar orders were approximately 18,770 in Q1, including a GATX agreement for 12,500 cars over five years. About 43% of the railcar backlog was expected to deliver in 2011, with the balance in 2012–2015.
- Construction Products revenue rose 12.8% to $133.6 million and operating profit to $8.3 million, driven by highway products; concrete and aggregates revenue declined, partly reflecting the 2010 asphalt divestiture.
- Inland Barge revenue increased 41.6% to $137.9 million and operating profit rose to $21.7 million. Barge backlog was $460.5 million, versus $361.1 million.
- Energy Equipment revenue increased 31.7% to $118.7 million, while operating profit was nearly unchanged at $10.5 million. Management cited production inefficiencies and product mix; wind tower backlog was $974 million, down from $1.1 billion.
- Leasing revenue increased 7.1% to $129.8 million and operating profit rose to $54.7 million. Management cited utilization, fleet additions, higher rental rates, and lower maintenance costs. Fleet utilization was 99.2% for wholly owned subsidiaries and 99.8% for TRIP Holdings.
Outlook, risks, and unusual items
- The filing provides no formal consolidated earnings or revenue guidance. Management described a recovery in transportation demand and a significant improvement in railcar orders, while noting continuing weakness in wind towers and construction markets. It said it believed capital resources were adequate to fund operating needs.
- TRIP Holdings’ $980.5 million non-recourse warehouse loan presents a significant financing risk. From June 2011, a majority of lenders could require repayment in four quarterly installments through March 2012. Management said TRIP Leasing was not expected to meet those payments from anticipated cash and operating cash flow alone and was evaluating financing alternatives. Failure to agree on alternatives could impair Trinity’s $95.5 million investment in TRIP Holdings; lenders may direct asset sales.
- The separate TILC warehouse facility was renewed for two years, to February 2013; $80.2 million was outstanding and $394.8 million available. Trinity’s $200 million share repurchase authorization runs through December 2012; the filing says no shares were repurchased under that program in Q1.
- Environmental and workplace liabilities included a $10.7 million reserve. Management said current litigation and claims were not expected to materially affect overall financial condition, but period results could be affected by their resolution. Unrecognized tax benefits were $40.2 million; tax examinations and appeals remain ongoing.
- Key stated risks include cyclical demand, customer credit and order timing, raw-material availability and cost, interest rates and access to financing, weather, competition, and legal, tax, environmental, and regulatory matters. Management reported no material change in market risks or previously disclosed risk factors.
Investor verification priorities
- Track the TRIP Warehouse Loan lender decision, refinancing alternatives, repayment schedule, and potential impairment of Trinity’s TRIP investment.
- Assess whether the exceptionally large railcar backlog converts to deliveries and cash generation as scheduled, including the GATX agreement and customer commitments.
- Reconcile operating cash use and the increase in receivables and inventories with production growth, collections, and future capital spending.
- Review the distinction between the statement that no shares were repurchased under the authorization and the 24,851 shares shown as purchased in Part II, which the filing attributes to employee-related share surrenders and a plan trust—not program repurchases.
- Monitor wind tower and construction demand, segment margins, tax examinations, and environmental and litigation exposures.