Greenbrier Companies, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended November 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and results
Greenbrier manufactures railcars and marine vessels, provides wheel, repair and parts services, and leases railcars and offers related services. Management attributed the quarter’s weaker results mainly to the freight rail equipment cyclical downturn, intensified by COVID-19 impacts.
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $403.0 | $769.4 |
| Gross margin dollars / margin rate | $40.7 / 10.1% | $92.2 / 12.0% |
| Operating income (loss) | ($2.1) | $41.8 |
| Net income (loss) attributable to Greenbrier | ($10.0) | $7.7 |
| Diluted EPS | ($0.30) | $0.23 |
| Cash from operating activities | $8.7 | ($70.3) |
| Capital expenditures | $38.6 | $23.2 |
Segment performance and key changes
- Manufacturing: Revenue fell 53.0% to $308.7 million; deliveries declined 54.2% to 2,700 railcars. Operating profit declined to $9.7 million from $53.1 million. Lower volumes and pandemic-related operating costs reduced the segment margin rate to 9.0% from 11.5%.
- Wheels, Repair & Parts: Revenue declined 24.3% to $65.6 million, primarily on lower volumes and demand. The segment recorded an operating loss of $0.2 million, versus $1.1 million of operating profit.
- Leasing & Services: Revenue increased 13.1% to $28.7 million, but operating profit declined 39.8% to $5.9 million. Higher sales of lower-margin third-party railcars and lower interim rent weighed on margins.
- Consolidated revenue declined 47.6%. Selling and administrative expense fell 19.6% to $43.7 million following headcount reductions and other spending controls, but rose to 10.8% of revenue from 7.1%.
- Interest and foreign exchange expense decreased to $11.1 million from $12.9 million, principally due to Mexican peso movements. A $7.3 million income tax benefit included favorable discrete tax items; the prior-year quarter had a $6.0 million tax expense.
Cash, debt and liquidity
- At November 30, 2020, cash and cash equivalents were $724.5 million and restricted cash was $8.5 million, compared with cash and restricted cash totaling $842.1 million at August 31, 2020.
- Operating activities generated $8.7 million. Investing activities used $24.9 million, including $38.6 million of capital expenditures; financing activities used $98.0 million, largely reflecting debt repayments, dividends and joint-venture distributions.
- Balance-sheet revolving notes were $276.2 million and notes payable, net, were $797.1 million. The filing reports $85.3 million available under committed credit facilities. Greenbrier said it complied with restrictive debt covenants at quarter-end.
- Management expected available funds, operating cash flow and financing capacity to cover anticipated debt repayments, working capital, planned capital expenditures, affiliate investments and dividends over the next 12 months.
Backlog, outlook, risks and contingencies
- Manufacturing backlog was approximately 23,900 railcar units, with an estimated value of $2.35 billion; marine backlog was $66 million. Railcar orders extend into 2024 and marine orders into 2022. Management cautioned that backlog is not necessarily indicative of future results and orders may be changed or canceled.
- No specific earnings or revenue guidance was provided. Facilities continued operating under enhanced health and safety protocols, but management could not predict the timing or magnitude of COVID-19 impacts in combination with the industry downturn.
- Key risks include disruption or closure of facilities, customer order delays or cancellations, supplier interruptions, higher borrowing needs, and uncertainty converting backlog to revenue.
- Potential Portland Harbor Superfund and related Oregon DEQ liabilities remain unquantified. Greenbrier stated there was insufficient information to estimate its liability, if any; remediation costs and natural-resource damages could adversely affect the company. The company also assumed potential legacy railcar liabilities in the ARI acquisition.
- Greenbrier’s $100 million share repurchase authorization remained available at quarter-end; its expiration was extended in January 2021 to January 31, 2023. No shares were repurchased during the quarter. A quarterly dividend of $0.27 per share was declared in January 2021.
Important facts for investors to verify
- Whether railcar deliveries, demand and manufacturing margins stabilize after the sharp year-over-year decline.
- Backlog conversion, including the timing, product mix and cancellation or modification risk of orders.
- Cash generation, capital spending, debt maturities, facility availability and continued covenant compliance.
- Developments in COVID-19 effects, customer and supplier conditions, and the Portland Harbor and other environmental contingencies.
- Whether the reported tax benefit and other discrete items recur; the filing notes interim results are not necessarily indicative of full-year performance.