Greenbrier Companies Earnings: Will Energy Keep Driving Railcar Demand?

On Wednesday, Greenbrier (GBX -0.08%) will release its quarterly report, and shareholders have enjoyed the railcar-makers huge growth in revenue and profits over the past year. As Union Pacific (UNP 1.03%) and other railroad companies have seen energy producers seek out rail-transportation options in order to get crude oil out from areas that have inadequate pipeline availability, Greenbrier and peer American Railcar Industries (NASDAQ: ARII) have worked hard to provide the tank cars that railroad companies need in order to meet their customers' needs.

Greenbrier makes a wide variety of railcars, ranging from box cars for shipping grain and coal to flat cars for container shipping and its proprietary AutoMax cars for automobile shipping. But most of the attention that Greenbrier has gotten lately has been for its tank cars because of the opportunity that Union Pacific and other railroads have seized to make rail transport a key part of the nation's energy infrastructure. The question for Greenbrier is how long it can see growth come from energy. Let's take an early look at what's been happening with Greenbrier over the past quarter and what we're likely to see in its report.

Source: Greenbrier Companies.

Stats on Greenbrier

Source: Yahoo! Finance.

How far can Greenbrier earnings roll higher?
In recent months, investors have had mixed views on Greenbrier earnings, cutting near-term projections for the May quarter and the current fiscal year by about 3% but boosting fiscal 2015 estimates by 5%. The stock has kept soaring, with gains of more than 30% since late March.

Greenbrier didn't get off to the best possible start, with fiscal second-quarter results back in April leaving investors disappointed. Even though revenue soared 88%, that was less than the growth rate that shareholders wanted to see, with new railcar deliveries falling 8% and making some worry that the boom times for railcar demand could be coming to an end despite 13% higher backlogs. Greenbrier blamed winter weather for some of its woes, and although the stock lost ground after the earnings announcement, most investors believe the company's projections for better times later this year.

Greenbrier owes much of its success to the energy industry. Even beyond tank cars, Union Pacific and other railroad companies have seen dramatic rises in demand for products related to oil and gas production, including special sand for hydraulic fracturing. As a result, Greenbrier has seen orders rise for covered hopper cars as well, which can handle fracking sand. Yet energy isn't the only reason Greenbrier has done well, as strength in the auto industry has led to greater use of car-transport cars.

Source: Greenbrier Companies.

Moreover, some recent tougher regulations covering crude oil transportation could actually benefit Greenbrier. In April, the Canadian government imposed more stringent safety measures for crude transport, and that buoyed optimism that Greenbrier, American Railcar Industries, and other railcar manufacturers could see railroads needing to replace existing tank cars with state-of-the-art new equipment. U.S. regulators will likely follow suit, and so Greenbrier can expect to add to the 7,000 railcar orders it got in April and May, including 2,300 tank cars.

In the Greenbrier earnings report, watch to see if demand in the energy industry remains a driver of growth for the company. As long as Union Pacific and other railroad companies in the U.S. and Canada need to take advantage of the North American oil boom, Greenbrier should stand in a strong position to benefit.

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