Greenbrier Companies, Inc. — Q3 FY2012 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2012. Financial amounts below are in millions of dollars unless stated otherwise. Results are unaudited.
Business context and results
Greenbrier manufactures railcars and marine vessels, provides wheel services, refurbishment and parts, and operates railcar leasing and management services. It also produces rail castings through an unconsolidated joint venture.
| Metric | Q3 FY2012 | Q3 FY2011 | Nine months FY2012 | Nine months FY2011 |
|---|---|---|---|---|
| Revenue | $507.8 | $317.3 | $1,364.2 | $800.6 |
| Operating earnings | $35.7 | $17.2 | $91.8 | $36.4 |
| Net earnings (loss) attributable to Greenbrier | $19.1 | $(3.3) | $51.3 | $(6.2) |
| Diluted EPS | $0.61 | $(0.14) | $1.65 | $(0.27) |
| Operating cash flow | Not separately presented | Not separately presented | $53.6 | $(77.3) |
Q3 revenue rose about 60%, driven mainly by manufacturing. Manufacturing revenue reached $364.9 million, with approximately 4,500 railcar deliveries versus 2,200 a year earlier. Nine-month manufacturing revenue was $947.8 million, with approximately 11,500 deliveries versus 5,400. Overall margin was $61.9 million in Q3 and $159.9 million year to date; operating margin was approximately 7.0% and 6.7%, respectively.
Manufacturing margin improved to 10.8% of segment revenue in Q3 and 10.1% year to date, from 8.5% and 7.1%. Management cited higher production rates, favorable pricing and sales mix, and improved operating efficiencies. Wheel Services, Refurbishment & Parts revenue was slightly lower in Q3, with margin percentage down to 10.8% from 12.0%; year-to-date revenue and margin improved. Leasing & Services revenue and margin also increased year to date.
Financial position and liquidity
- At May 31, 2012, cash and cash equivalents were $44.9 million, down from $50.2 million at August 31, 2011; restricted cash was $6.1 million.
- Gross reported borrowings were approximately $499.5 million, comprising $71.4 million of revolving notes and $428.0 million of notes payable, compared with approximately $519.5 million at fiscal year-end.
- Committed credit facilities totaled $357.0 million, with $279.0 million available to draw at quarter-end. The $290 million North American revolver matures in June 2016; European facilities mature between December 2012 and June 2013. Availability depends on borrowing-base calculations and financial covenants.
- Nine-month investing cash outflow was $43.3 million, including $72.1 million of capital expenditures and $33.3 million of equipment-sale proceeds. Financing cash outflow was $16.5 million. Cash declined by $5.3 million over the period.
- Total equity was $435.5 million, up from $375.9 million at August 31, 2011. Inventory increased to $346.1 million from $323.5 million.
Changes, outlook and notable items
- Revenue and earnings rebounded substantially from the prior-year loss periods. Lower interest and foreign-exchange expense supported year-to-date results; the prior-year comparison included a $10.0 million debt-extinguishment loss.
- Manufacturing backlog was approximately 11,500 railcars valued at $1.14 billion, versus 13,600 railcars valued at $1.05 billion a year earlier. Marine backlog was $25.9 million versus approximately $0.25 million. Management cautioned that backlog is not necessarily indicative of future results and can be affected by product mix, order changes or cancellations.
- No specific earnings or revenue guidance was provided. Management expected available funds, operating cash generation and financing sources to cover working capital, planned capital expenditures and expected debt repayments for the next 12 months. FY2012 capital expenditure expectations were approximately $33 million for Manufacturing, $14 million for Wheel Services and $25 million for Leasing & Services net of expected railcar-sale proceeds.
- Greenbrier identified 591 nonconforming wheel sets from its Mexico City shop that could pose a failure risk. About 174 had been replaced by the filing date; estimated replacement costs were not expected to exceed approximately $0.75 million, which had been accrued. An additional approximately 9,500 wheel sets varied from standards, but management did not expect immediate replacement or material costs.
- The company sold 743 railcars to trusts for $61.1 million and recorded a maximum $4.2 million return-support obligation in restricted cash and deferred revenue. The broader transaction covers 1,363 railcars for $115.4 million, expected to close in tranches through March 2013, and requires up to $8.0 million of cash collateral.
- Environmental liability related to the Portland Harbor Superfund site and Portland property investigations could not be quantified while investigations and allocation discussions continued. The filing also describes ongoing SEB warranty negotiations and unresolved Okombi claims; management stated that recorded SEB repair estimates did not exceed accrued amounts and believed resolution of the legal matters would not materially adversely affect the financial statements.
- Other risks include volatile steel and component costs, supplier availability, cyclical railcar demand, customer concentration, production execution, foreign-exchange and interest-rate exposure, and credit facility covenant and renewal requirements. The company guaranteed approximately $39.4 million of Mexican joint-venture third-party debt and committed to fund half of a $10.0 million fourth-line capital program.
Most important facts for investors to verify
- Whether the sizable manufacturing backlog converts to deliveries and margins as expected, including the impact of product mix, cancellations and input costs.
- The final scope and cost of wheel-set remediation, and whether additional warranty or product-quality issues arise.
- Potential Portland Harbor environmental investigation, remediation and natural-resource-damage liabilities, which were not estimable in the filing.
- Credit-facility availability, covenant compliance and near-term European facility renewals, as well as the Mexican joint venture’s debt, guarantees and capital commitments.
- The economics, collateral exposure and completion schedule of the railcar trust syndication, including the return-support obligation.