3 Companies Leading the Charge in the U.S. Railroad Resurgence

American Railcar Industries, Trinity Industries, and The Greenbrier Companies are all at the forefront of surging railroad demand.

Mar 31, 2014 at 10:27AM

A combination of both the domestic economic recovery and the oil-by-rail boom has been a shot in the arm for rail companies during the past year or so. This surging demand shows no sign of letting up just yet, which is great news for the three main railcar leasing and manufacturing companies: American Railcar Industries (NASDAQ:ARII), Trinity Industries (NYSE:TRN), and The Greenbrier Companies (NYSE:GBX)

Surging traffic
According to data from the Association of American Railroads, during the third week of March, total combined U.S. weekly rail traffic was 545,366 carloads and intermodal units, up 7% compared with the same week last year. However, the number of crude oil cartloads moved by rail showed an even more impressive increase. The AAR reported that 108,590 carloads of crude were shipped during the fourth quarter of 2013, bringing total crude movements for the year to 407,642 carloads; this was a 74% increase over the 233,819 carloads transported during 2012. That said, during 2013 crude oil only accounted for 1.4% of total cartloads.

With the volume of railroad traffic within the U.S. continuing to grow, it is likely that the railcar leasing market will have another strong year as new cars are brought online to meet demand.

Smaller is better
American Railcar Industries is one of my personal favorite railcar companies. It is also the smallest company in terms of market capitalization discussed here.

American Railcar manufactures railcars of multiple styles, which is in itself a lucrative business as rail traffic rises. However, the company is also building its own railcar leasing division, and profits are already flowing in. American Railcar reported a strong 21% rise in adjusted earnings before interest, tax, amortization, and depreciation for full-year 2013; this was thanks to a combination of two factors. Firstly, the company managed to improve the gross margin by 10%, from 20.8% to 23.8%. Secondly, it also reported a 140% jump in railcar leasing revenue.

Now, railcar leasing is an extremely lucrative business to be in and American Railcar is reaping the benefits from moving into this market. For example, the company's gross margin from leasing was 58% during 2013, while the gross margin from manufacturing was only 22%. Railcars tend to be leased on contracts lasting several years, which locks in cash flow. The company is continuing to expand its fleet as well, with 2,330 railcars for lease in its manufacturing backlog. American Railcar's backlog also includes 8,560 railcars for other customers, most of which are tanker cars that are required to keep up with the oil-by-rail boom. After a 36% jump in earnings during 2013, American Railcar's future looks bright with analyst forecasting a 13% jump in earnings this year.

A more diversified play
Like American Railcar, Trinity Industries is in the business of railcar manufacturing and leasing. The company is also involved in barge manufacturing, construction services, and more. It's even a major wind-tower maker.

Over the past four years, Trinity has really benefited from the economic recovery in the United States. This is set to continue as rail traffic keeps expanding. Trinity Industries' revenue has averaged annual growth of 33% during the past four years, while earnings growth has averaged 115% per annum. Further, Trinity is actually a key part of the U.S. domestic rail infrastructure as the company is a market leader, essential to any rail recovery. During 2013, Trinity shipped 24,335 railcars, representing 46% of industry shipments during the year. The company also received orders for 32,240 railcars, representing 49% of the industry total during the year. At year end, the company's backlog for rail cars orders represented 55% of total industry backlog, worth around $5 billion.

Safety concerns
The oil-by-rail boom, although lucrative for some, has led to a number of fatal accidents, and many are now calling for tougher regulations to be brought in. according to The Greenbrier Companies CEO William Furman, around 80,000 tanker cars don't meet current safety standards and need to be replaced or retrofitted. This massive overhaul is going to be a boon for tanker manufacturers like Greenbrier, American Railcar, and Trinity.

Greenbrier is rising to this upcoming challenge, and in the words of Furman the company is "well positioned to respond" to shippers' retrofitting or new build needs. The company has announced that that it will design a new generation "Tank Car of the Future" for rail transport of hazardous freight, including flammable crude oil and ethanol, that can better withstand the additional demands associated with operating unit trains.

In North America, Greenbrier can build tank cars at a rate of 4,000 cars per year. It is increasing its capacity in light of higher demand for tank cars related to the energy renaissance in America. As of Nov. 30, 2013, 47% of Greenbrier's backlog consisted of tank cars .

Bottom line
Overall, Greenbrier, Trinity, and American Railcar all look well placed to ride the U.S. rail resurgence. However, Trinity, with its diversified operations and near 50% share of the U.S. railcar manufacturing capacity, looks to be in the best position to benefit in the long term.

There's still time to profit from America's energy revolution
You already know record oil and natural production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information