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Trinity Industries Inc (NYSE:TRN)
Q4 2020 Earnings Call
Feb 24, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Trinity Industries' Fourth Quarter 2020 Results Conference Call. [Operator Instructions]. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance.

Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks. A change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Please note, this event is being recorded.

I would now like to turn the conference over to Jessica Greiner, Vice President of Investor Relations and Communications. Please go ahead.

Jessica L. Greiner -- Vice President-Investor Relations And Communications

Thank you, Kate, and good morning, everyone. I'm Jessica Greiner, Vice President of Investor Relations and Communications for Trinity. We appreciate you joining us for the company's rescheduled fourth quarter 2020 financial results conference call. Following the weather-related events affecting Texas and surrounding areas last week. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer.

We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will refer to a few slides highlighting key points of discussions. The supplemental materials are accessible on our IR website at www.trin.net. These slides can be found under the Events & Presentations portion of the site, along with the fourth quarter earnings call event link. They are also available live during the webcast.

It is now my pleasure to turn the call over to Jean.

E. Jean Savage -- Chief Executive Officer And President

Thank you, Jessica, and good morning, everyone. I'd like to start today on slide three and pick up where we left off at our Investor Day in November last year. We laid out our strategy for Trinity's Rail platform to deliver premier financial performance and deploy capital to drive value creation. 2020 was a year of extraordinary change for Trinity, affecting this change to evolve into a cash flow and returns-focused company during a global pandemic was all the more challenging.

But our team pulled together and made difficult decisions that have put Trinity on the path to accelerate our financial performance. I want to commend our people for their commitment to the company, to each other and to our customers and all our stakeholders. To begin my remarks, I believe there are several highlights from our fourth quarter and fiscal year 2020 performance that position us very well for the future.

First, we've aligned our business under a core purpose and laid out our strategy for improving the company's returns. The strategic initiatives focused on optimizing our business structure, and growing our product and service offerings to advance modal share for the railcar industry. Second, in line with the strategy, Trinity completed the vast majority of our planned restructuring efforts during 2020.

We also made further progress on leveraging Trinity's balance sheet under our targeted capital structure. We expect to make additional progress in lowering our overall cost structure in 2021. Third, Trinity's rail platform proved resilient during the unprecedented market events of COVID-19, generating strong cash flow from operations.

And finally, there is potential to return additional capital to shareholders given the attractive cash flow profile of our business and the enhanced capital allocation framework we laid out at our Investor Day. We are very excited about our future and very much expect 2021 to be a year of execution against our strategy to move the company forward. We believe we have a number of levers at our disposal to improve our performance, and we'll share those results with you along the way.

Turning to slide four. Let's review the key financial highlights. Our fourth quarter financial performance reflects a decline in railcar demand as rail traffic fell amid the COVID-19 outbreak last spring. As a result, fourth quarter revenue of $416 million declined approximately 51% compared to last year. Our fourth quarter GAAP loss of $1.13 primarily reflects onetime charges that occurred during the quarter.

Trinity's adjusted EPS of $0.04 fell from prior year as a result of lower deliveries and softer railcar pricing. Trinity's team worked quickly and diligently to cut cost out of the business. Our cost structure was burdened by the lost efficiency from production declines. While our leasing operations held steady during the challenging market, lower lease portfolio sales and railcar deliveries created an earnings headwind for the full year.

Our total GAAP loss for the year of $1.27 declined 217% year-over-year and 2020 adjusted earnings declined 71% to $0.37 per share. Our earnings performance amid the COVID-19 environment is disappointing. However, our platform continues to drive significant and stable cash flows. Our fourth quarter cash flow from continuing operations totaled $195 million, which is down just 15% from the prior year.

Free cash flow after all investments and dividends of $64 million decreased 51% over the fourth quarter of 2019. The for the year, and turning to slide five, operating cash flow of $652 million improved significantly year-over-year. As a result of our more conservative capital structure during the pandemic, free cash flow of $113 million declined approximately 22%, given higher leasing equity capex for the year. Both Eric and I will speak to the performance factors driving these results in a minute.

But the important takeaway from our consolidated fourth quarter and full year metrics is a resilient and stable cash flow generated from Trinity's rail platform in a very challenging market, a testament to the valuable synergies within the business. Overall, we continue to operate in a soft but improving market. Looking at slide six. Rail volumes, which are closely tied to the U.S. economic output, have essentially recovered from the decline we saw over the first half of 2020.

We are seeing the strongest recovery in agricultural and consumer-related markets. Railcar loadings for energy-related commodities like crude and coal, continue to lag the recovery given the impact of the economic shutdown. Industry railcar utilization is also improving. Over 125,000 railcars have returned to service or for scrap since the peak of railcars in storage last summer.

We estimate nearly 51,000 railcars were scrapped in 2020 and resulting in the first year of an industry fleet contraction in over a decade. We expect this elevated pace of scrapping to continue so long as higher steel prices incentivize railcar owners to scrap older assets. While the industry railcar storage rate of 24% remains above the five year average, the trend is a relevant indicator for the health of the railcar industry. Looking at the bottom two charts, specific Trinity's business, we generally see the sector-specific impacts of an industry recovery first within our lease fleet before we see improvements in new railcar demand.

During 2020, lease rates declined significantly compared to its filing lease rates as a result of lower demand for railcars. As rail traffic has picked back up, lease fleet utilization is stabilizing. We are also beginning to see early improvement in sequential railcar lease rates with the future lease rate differential, FLRD metric inflecting positively during the fourth quarter. We introduced this metric at our Investor Day to provide investors a sense of headwinds or tailwinds the current pricing environment will have upon Trinity's lease portfolio in the near term.

Orders during the fourth quarter were low as expected and, for the year, represents the lowest number of orders since the financial crisis in 2009. This is not surprising given the availability of railcars within the industry and the current projections for a slowly recovering industrial economy. We are seeing a significant increase year-over-year and the number of inquiries from shippers and Class one railroads for available railcar equipment.

While it's premature to estimate when these inquiries will lead to improvement in lease utilization, rates and new railcar orders, it is a very positive sign for the rail market recovery. Given where we are today, we expect a modest recovery in railcar demand in the back half of 2021. Trinity's market-leading platform and experienced managing through railcar cycles enables us to promptly respond to changing market dynamics and meet customer demand.

More importantly, while the railcar market may likely only improve to a more normalized or replacement level market in the near term, we feel confident in our ability to execute our strategy and improve our financial performance. Turning from the industry to Trinity's results on slide seven. The value and stability of Trinity's leasing business was readily apparent as the year unfolded. Our lease fleet utilization took an initial step down in the first quarter of the year, then proceeded to hover around 95% utilization through 2020.

We are highly focused on maintaining our utilization and are seeing green shoots of improvement within various railcar types. Approximately 17% of our portfolio was up for renewal in 2020, limiting the impact of declining lease rate on top line revenue for the leasing business. Stronger lease rates on railcars added to the portfolio nearly offset the headwind and from utilization and lower lease rates on renewals, with annual revenue from leasing and management declining approximately 1% year-over-year.

Looking into 2021 we have approximately 20% of our portfolio up for renewal, and we will have less of a headwind for lease rate pricing as reflected by the FLRD metric. The leasing team did a tremendous job managing our maintenance expenses to offset the earnings impact of the revenue decline within the segment. Segment profit also benefited from the change in our depreciation policy to extend the useful life of our assets and better reflect the economics of railcar ownership.

We have a number of initiatives in place to lower our overall maintenance cost structure through increasing the use of our internal network and implementing advanced technologies into our maintenance cleaning processes. Looking into next year, 2021 will be a heavier compliance year for maintenance events so leveraging our maintenance platform will be key. The Rail Products segment endured a difficult year as declining backlog required production cuts and layoffs within both our production and maintenance facilities. Lower pricing and the unabsorbed burdens from the lower delivery impacted the margin throughout the year.

In the fourth quarter, the performance was also impacted by start-up costs related to our new maintenance facility in the Midwest and idling costs associated with other nonstrategic facilities, resulting in breakeven margin in the segment. We do expect there will be ongoing headwinds to segment performance in the first quarter this year due to lower volumes, further headcount reduction and additional maintenance facility start-up costs.

We anticipate the benefit of our cost savings initiatives will begin to benefit segment performance in the second half of the year and will improve the segment margin performance year-over-year. Before I turn the call over to Eric to discuss our financial results in further detail, let me close with an update on our initiatives to improve Trinity's returns on slide eight. First, as a reminder, we believe there are a number of levers at our disposal to improve our pre-tax ROE performance to a mid-teen level through the cycle.

The strategic initiatives align under two areas of focus: optimization and growth. As we detailed at our Investor Day, there is a significant information value in our rail platform, and we are confident in our ability to monetize that value across services, parts and solutions. In 2020, our balance sheet optimization was modest as a result of a healthy level of near-term liquidity and our decision to maintain a more conservative capital structure through the pandemic.

During the year, our net debt increased approximately $135 million. In 2021, we expect to add additional leverage to our balance sheet as we have opportunity to deploy that capital. In regards to SG&A, we achieved over $35 million of annualized administrative cost reductions in 2020. We'll continue evaluating SG&A cost reduction opportunities through process improvements and vendor management, and as always, manage a cost structure of our support organization to the size of the overall business.

To improve our manufacturing performance, we are moving forward with our supply chain initiatives to enhance the value of outsourced fabrication activities from our facilities. We expect these efforts to shift approximately $45 million of cyclical headcount cost savings achieved in 2020 to structural cost savings upon execution. We've also made a modest investment subsequent to year-end to acquire a railcar cleaning company with advanced proprietary robotics.

We expect to scale this technology to our facilities over the next few years, which will improve our overall production operations' efficiency and improved rail segment margins. In regards to fleet optimization, we expect to make modest investments to reposition certain railcars to other commodity service that we believe have better longer-term demand profiles. We also expect to complete a modest level of portfolio sales from our lease fleet to financial investment partners with lower hurdled capital.

Earlier this month, our commercial team was very excited to officially launch the new Trinsight digital service offering to our customers. Trinsight provides real-time intelligence on the location and condition and status of railcar equipment, resulting in rail transportation efficiency and safety that enhance rail feed operations for shippers. This product offering is aligned with our sustainability commitment and is a key initiative in our business strategy to improve the overall rail-mobile supply chain.

Trinsight is generating a modest amount of revenue through the beta testing of the product, and we are receiving a very positive response from shippers interested in service following the product launch. It is early days for sure but with the backdrop of improving fundamentals and our confidence in the strategy we have developed, it's an exciting time to be looking forward at Trinity.

With that, let me now turn the call over to Eric to detail our quarterly results.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Thank you, Jean, and good morning, everyone. As Jean noted, Trinity's fourth quarter represents the continuation of lower railcar demand brought on by the COVID-19 pandemic. Additionally, our fourth quarter operating results were impacted by a number of one-time items. These adjustments primarily relate to the effect of the pension plan settlement as well as later-stage restructuring activities, including writedowns to manufacturing-related assets.

We also had a benefit from our final 2020 income tax provision as a result of tax law changes in 2020. Starting with the income statement portion of slide nine. Total revenues and adjusted earnings reflect a challenging RevPAR market with declining railcar deliveries and softer pricing. At these lower levels of manufacturing earnings, timing of railcar sales and fluctuations in lease and operations and legal and administrative expense have had varying impacts on our earnings results.

During the fourth quarter, Trinity incurred two impairment charges related to restructuring efforts and other market-related factors. The first charge was a noncash writedown relating to existing maintenance facilities that did not fit our operational strategy or cost profile and have been classified as assets held for sale. Our maintenance business has realigned its operational approach to focus on large, full-service railcar maintenance facilities, thereby providing better and more timely service to trace railcar lease fleet and our strategic customers.

The second charge was a write-off associated with an investment in emerging technology for advanced steel materials, where the third-party was unable to secure adequate funding that is in the process of liquidating. Moving to our cash flow. Total cash from operations during 2020 improved year-over-year as a result of the cash flow synergies of Trinity's rail platform as well as the countercyclical effects of working capital from our balance sheet. Trinity generated approximately $652 million in cash flow from operations.

With the sequential fourth quarter increase, resulting primarily from the receipt of a $64 million income tax receivable. At year-end, we have approximately $446 million in income tax receivable associated with the 2019 and 2020 tax years. We now expect to receive the 2019 refund in the first half of this year. Trinity invested approximately $102 million last year in manufacturing and other company capex. Which included the build-out of our maintenance facility in the Midwest.

We also made a net investment in our lease fleet of approximately $464 million. Considering the effects of modest leverage on new lease fleet additions and associated debt amortization during the year, our equity capex required for this investment totaled $484 million in 2020. Total free cash flow after all investments and dividends paid to investors amounted to $113 million for the fiscal year. Trinity returned a total of $285 million to shareholders in 2020, including dividends of $92 million, an additional $193 million in share repurchases.

At the end of the year, we have approximately $182 million remaining under our current authorization that runs through the end of 2021. Before we move on, we also want to call investor attention to changing the treatment of our portfolio sales from our lease fleet on a prospective basis. We will now present all sales of railcars from the lease fleet as a net gain from the disposal of a long lived asset. This should simplify our reporting for investors.

This change will slightly affect the presentation of our cash flow statement and the net investment in new lease fleet additions, but it will not change the net effect of our free cash flow metric for segment operating profit. At this time, we are not providing specific earnings guidance, given the uncertainty in the market-related to the economic recovery of the COVID-19 pandemic.

That being said, our business model generates significant cash flow, and we are highly focused on the value we can create from deploying this capital. For 2021, we expect cash flow from operations to be between $625 million and $675 million. Turning to slide 10. As Jean noted, our balance sheet is well capitalized, and we ended the fourth quarter with total liquidity of $727 million. During the fourth quarter, we issued over $526 million of new debt at a blended interest rate of 2.4%.

We estimate Trinity's pre-tax weighted average cost of capital improved during 2020 by 130 basis points to approximately 5%. The capital markets for railcar securitizations are at historically attractive rates as more and more investors are participating in these financings. As a pioneer in the railcar securitization market in the early 2000s, we are pleased to see this response to be asset class and expect to take further advantage of the market in 2021.

In late January, we are proud that Trinity's leasing company was the first North-American railcar lessor to establish a Green Financing Framework. As part of our commitment to sustainability, Trinity takes our commitment to reducing our environmental impact seriously. TLC's Green Financing Framework opens Trinity's capital raising to new investors with a growing appetite for investing in green assets, and the response has been favorable.

Trinity remains in a very good capital position with ample liquidity, strong cash flow generation, and approximately $1.4 million in unencumbered assets. When we consider the long-term performance of the business, we are confident that the changes effected during 2020 will set our company on a path for accelerating our financial performance and unlocking value for shareholders. At our Investor Day in November, we issued four key long-term key performance indicators presented here on slide 11.

Earnings value is inherent in the cash flows of our long duration railcar assets, platform synergies and opportunities for growth and a disciplined capital allocation framework focused on shareholder returns. When evaluated over time, we believe these indicators collectively drive long-term value creation. In 2020, operating cash flow improved year-over-year, as previously discussed, and free cash flow declined modestly. Our return on equity declined year-over-year from deteriorating market fundamentals.

However, the company has established a framework for improving our performance for which we feel many of the levers for improvement are within management's control. Trinity executed on its commitment to deliver double-digit dividend growth with our December dividend increase of 11% and which is paid in January 2021. Our dividend growth in 2020 compared to the previous 2019 year was also nearly 12% for the year. Book value per share slightly declined year-over-year, principally due to certain onetime items.

Before I leave this slide, let me reiterate the Trinity strategy to drive returns and cash flows will not be linear for quarter-to-quarter. Each action we take we made with returns and cash flows in mind. The pace of economic recovery will impact the time frame to achieve our goals but I want to be clear that we expect to make progress against our returns and cash flow goals, regardless of the market environment and believe that Trinity is well positioned to do so.

I will conclude our remarks on slide 11 -- or slide 12, by reiterating our key takeaways from the fourth quarter fiscal year-end and look forward into 2021. First, we laid out a strategy to reposition Trinity's rail platform, improve the returns of the business and unlock shareholder value. Second, we made solid progress on our initiatives to optimize both process and expenses across all aspects of our rail platform.

We are proud of the hard work of our people put forth during global pandemic to reposition the company for accelerating financial performance. Third, our platform demonstrated the ability to generate significant cash flow in a very challenging market environment. And finally, our commitment to a capital allocation framework that focuses on long-term shareholder value.

In 2021, we intend to further optimize our manufacturing platform through supply chain outsourcing and integrating advanced technologies, enhance our product portfolio through evolutionary products and services for our customers and continue to optimize our balance sheet through additional leverage, fleet modifications and portfolio sales. The uncertainty within the market could be a financial headwind to the impact of these initiatives, but we believe they are critical to accelerating the company's performance. We are confident in our ability to execute and look forward to sharing our results with you throughout the year.

Kate, you may now take us to questions from our participants.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Justin Long of Stephens. Please go ahead.

Justin Long -- Stephens -- Analyst

Thanks and good morning. So Jean, maybe to start with something I think you said on Rail Group margins. I believe you said, second half margins would be better year-over-year versus the second half of 2020. I wanted to one just make sure that I heard that correctly.

And maybe if there's any additional color you can provide around the quarterly cadence? In the first half, you mentioned some cost pressures, the cost saves not really kicking in until later in the year. So, maybe you could give us some perspective on how margins should flow versus what we saw in the fourth quarter?

E. Jean Savage -- Chief Executive Officer And President

Sure. Thanks Justin for the question. So, when you look at the real product segment, what we have seen is the headwinds on very competitive pricing out in the market. And then also the abundance of railcars have been out in the market available to put to use. Remember that we switched to making sure that we utilize our existing fleet before we go and add new cars into that fleet.

My comments in the prepared remarks were that the first quarter, we expect to see some headwinds and that is still some decline in the volumes. We still have some headcount reductions going on. And we still have our Midwest facility coming up to speed. But the second half of the year, we expect to see results of our initiatives that we have under way putting us positive. And that I said we would expect the Rail segment margins year-over-year to improve.

Justin Long -- Stephens -- Analyst

Okay. But to clarify that was just for the second half and not for the full year?

E. Jean Savage -- Chief Executive Officer And President

No, for the full year, we would expect the Rail segment margins to improve.

Justin Long -- Stephens -- Analyst

Okay. Perfect. And then second question is on the operating cash flow guidance. Maybe Eric this is for you. I was wondering if you could update us on the CARES Act money that you're expecting in 2021. And is that factored into this operating cash flow guidance? And then maybe you could talk about what you're anticipating from a working capital standpoint as well?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Yes, Justin, this is Eric. So, as I mentioned in my prepared remarks, the -- we received our 2018 return $62 million. We had expected at our Investor Day when we were talking about the 2019 return we expected that to be received in 2020. It was not -- that's about $245 million, so that is now in that cash flow from operations number that I've given you.

Based on the timing of the 2019 refund, the 2020 refund which is about $190 million is not -- we are not including that in our cash flow projections for 2021. Basically we had a slide at -- we slid 2019 into 2021 and we'll slide 2020 into 2021 or 2022. And then in terms of working capital, we got a significant pickup from working capital in 2020. I would not expect that same type of benefit this year as most of that has flowed through in 2020 already. So, we're not anticipating big pickups from working capital.

Justin Long -- Stephens -- Analyst

Okay, that's helpful. I appreciate the time.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Thank you.

E. Jean Savage -- Chief Executive Officer And President

Thank you.

Operator

The next question is from Allison Poliniak of Wells Fargo. Please go ahead.

Allison Poliniak -- Wells Fargo -- Analyst

Hi good morning. Just want to follow along Justin's comments -- or question around margins. You've certainly taken a lot of structural cost out of the business model here, is there a framework to think about incremental margins here as we hopefully start to move toward a recovery?

E. Jean Savage -- Chief Executive Officer And President

Sure Allison. I'll start on that. If you saw the investor deck on page 18, we talked about the manufacturing margin and how we were going to lower the breakeven by 30% and you should expect the margin improvement over the three years to improve from three to -- by three to 5.5 basis points.

So, we are executing on that. The timing of that's going to vary. It's really hard to say quarter-over-quarter or year-over-year because most of those initiatives were multiyear projects. We have in 2020 made a big down payment by resetting our overall cost structure and we'll continue to update you as we complete these initiatives.

Allison Poliniak -- Wells Fargo -- Analyst

Okay, great. And then within -- your lease rate trends have been positive. Obviously, we've been seeing the industry storage level come in. I don't know Eric, if this is one for you or Jean. Just any perspective on how you think that starts to evolve. Is there sort of key areas that we should be looking for in terms of driving demand at least to sort of a replacement level? I guess do you feel like we're getting closer to that actual bottom where we could see a greater inflection? It sounded like that based on your comments.

E. Jean Savage -- Chief Executive Officer And President

Sure. So I'll go ahead and start that Allison. If you're looking at the North American carloads, year-to-date carloads are down about 2.3%. Traffic is up 3.3%. And looking in those areas that have the price spots the chemical and agricultural are the best or the most accretive to us. We still have some headwinds with petro frac and the coal markets. The other thing though that's playing into this is attrition.

I mentioned in the prepared remarks, there's been about 51,000 railcars that were scrapped last year. That's in the areas that have the older or the aged fleet that says the hoppers and the gondolas, covered hoppers and boxcars. Now the rate of scrapping increased as a year went on. And I think as long as the scrap prices remain high that you're going to continue to see a higher level of scrapping.

Allison Poliniak -- Wells Fargo -- Analyst

Got it. And I guess we're hearing scrapping and it's coming down. I guess if -- in the order increase that you're receiving, are you starting to sense an appetite for replacement demand at this point?

E. Jean Savage -- Chief Executive Officer And President

So I mentioned again in the prepared remarks that we have a lot more inquiries year-over-year. And that's great to see that. What we haven't seen yet is everyone translating those into orders. So inquiries are up. They're in the markets that we talked about. You can look at those with high utilization, low cars and storage. And those that have the higher scrap rates over the demand is definitely picking up.

Allison Poliniak -- Wells Fargo -- Analyst

Okay. Excellent.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

And Allison, I want to make sure I understood. What did you say was going down?

Allison Poliniak -- Wells Fargo -- Analyst

Well just the idle cars the storage number. Obviously, you're getting scrappage and just sort of where we could expect that inflection on replacement.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Thanks.

Justin Long -- Stephens -- Analyst

Got it. Thanks. I'll pass it along.

Operator

The next question is from Gordon Johnson of GLJ. Please go ahead.

Gordon Johnson -- GLJ -- Analyst

Hey, guys. Thanks for the questions. Just a few on my end. Can you tell me how much of the operating cash flow was from the onetime tax refund i.e. the CARES Act?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Yes. Gordon that was as I mentioned we -- in 2020 it was $62 million that we received -- of our cash flow that would have hit into cash from operations.

Gordon Johnson -- GLJ -- Analyst

Okay. Sorry, if you said that. I didn't catch that. Sorry about that.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

No problem. No, no problem.

Gordon Johnson -- GLJ -- Analyst

Yeah. No problem. And then with respect to the FLRD, this seems like a new metric. What's the significance of this? And how is it balanced with the utilization rate which was down a little bit I think this quarter?

E. Jean Savage -- Chief Executive Officer And President

So this FLRD was -- we showed that at the Investor Day. The purpose of that was to give you a forward look. Some of the things to think about for the FLRD is one our comps are getting both year-over-year which is good. We've seen the lease rates in the market stabilize and improve slightly on a sequential basis.

If current market pricing holds, we would expect FLRD to improve in 2021 given our current year of portfolio renewals have that easier comp. And we plan on providing the FLRD on a quarterly basis to you. So we think it will help you as far as you're modeling going forward and what to expect from us either tailwinds or headwinds

Jessica L. Greiner -- Vice President-Investor Relations And Communications

And Gordon, this is Jessica. Just for additional context when -- we did provide that future lease rate differential for the first time relative to Q3 of 2020 in the supplemental materials we have given in our one year look back so you can see how that metric has trended over the last 12 months.

Gordon Johnson -- GLJ -- Analyst

Okay. Thanks. That's really helpful. And then with respect to the backlog, can you guys give us any indication of how much you expect to realize this year? And if that's at all front or back end loaded?

E. Jean Savage -- Chief Executive Officer And President

Sure. I'll go ahead and I'll start on that Gordon. Right now we expect 60% of our backlog, current backlog to deliver in 2021 and we'll see what other orders come in during the year.

Gordon Johnson -- GLJ -- Analyst

Okay 60%. Okay. That's helpful. And then I guess I got a lot. One more if I could. So this is a more broad -- more general question. It seems like there could potentially be -- there's some thoughts out there that we could be entering into somewhat of a commodity -- long-term commodity super cycle. Maybe that's right, maybe that's wrong. But if that is indeed right could you guys talk about how that may affect your business this year and kind of over the next couple of years? Thanks for the question, guys.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

You bet. Gordon, this is Eric Marchetto. So if we are we're not -- let me -- one thing that you directly see and we're already seeing that now as higher steel costs. Higher steel cost obviously the big input on new railcar prices. So that could have -- if we -- if your premise is correct and we hit a commodity super cycle then that would make certainly asset prices new railcars increase.

Obviously, that may dampen some appetite for railcars, but the railcars and the margin that gets built would be more expensive. That would have a positive lease rate increase and that would provide more of a lift to existing car rates more of an opportunity for those existing car rates to move. On the -- more on the supply side, if we're in commodity super cycle a lot of commodities move by rail whether that's for domestic use or exports. And so that would certainly have an impact on the demand side. It kind of depends on where it goes, but I think generally deposit...

Gordon Johnson -- GLJ -- Analyst

Is there any impact from the Keystone pipeline shutting down in your business? Is that positive or negative?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

I would call it neutral at this point. There wasn't a -- there hasn't -- that pipeline has an existed so the demand has been there on the margin. It should be slightly positive, but we haven't seen that yet.

Gordon Johnson -- GLJ -- Analyst

All right. Thanks guys. Thank you.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Thank you.

Operator

The next question is from Bascome Majors of Susquehanna. Please go ahead.

Bascome Majors -- Susquehanna -- Analyst

Yes, thanks for taking my questions. Eric to follow-up on Justin's question kind of digging into the cash flow guidance, could you just clarify or share maybe a range for cash interest in there? And any other book-to-cash reconciling items that could be lumpy besides the refund quantification? Thanks.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

So by asking if you -- I just want to clarify are you talking to interest income interest expense I'm sorry?

Bascome Majors -- Susquehanna -- Analyst

Interest expense in the operating cash. Just framing cash interest?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

So that would not be -- well it would be in the income. Our debt balances haven't really changed that much. And so it should be relatively stable. As we talked about you'll see in our -- when we release our K later today. We've had a little bit of a pickup from lower interest rates it's offset by marginally higher debt balances. So year-over-year I would expect not a big change in interest income -- or sorry, I keep saying income interest expense in the numbers. But you'll see that as we when we when you dig into the K.

Bascome Majors -- Susquehanna -- Analyst

Any other book-to-cash reconciling items that could be a little lumpy?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

In that number there's always some lumpiness, but mainly the big components of it are going to be depreciation and amortization which is a big number. And then I mentioned some modest working capital. And then you guys -- the tax receivable certainly the $189 million. That's kind of the bigger item of the depreciation and amortization.

Bascome Majors -- Susquehanna -- Analyst

Thanks for that. There were some earlier comments about taking some of the cyclical savings in the manufacturing business and then becoming more permanent this year. Can you talk about perhaps the long-term footprint of that business once we get through this cyclical challenging time? And how captive that manufacturing business is expected to be longer term to your leasing business versus selling to third parties? And is that mix expected to change? Thank you.

E. Jean Savage -- Chief Executive Officer And President

Sure. When you look at it, we don't expect the change in our business model. We think there's a lot of synergies that play out. Last year we did have a lot of resetting of that manufacturing to make sure going forward, we could deliver on the margin improvements that we've talked about in Investor Day through that cycle.

We're going to continue to do initiatives. Page 20 of the investor deck have what some of those initiatives are. And you can also look at page 50. It gives you an outline over the three years. I would say throughout the three-year cycle we will be making changes overall. We'll be looking at implementing the strategies that we have in place. And you should see the improvements show up through the years. I just can't give you the get timing for each one of them.

Bascome Majors -- Susquehanna -- Analyst

Understood. Thank you. And perhaps lastly here, I don't know if Jean or Eric wants to answer to this, but there certainly seems to be a public equity investor appetite for looking at backlog or long-cycle cyclical businesses on mid-cycle earnings and being willing to ascribe that valuation even at those aren't necessarily here this year or next.

Do you think that's a useful way to look at Trinity's business with the changes that you're making from a valuation standpoint? And are you willing to, kind of, frame to investors what elusive hypothetical mid-cycle could look like with all the initiatives that you've got taking place?

E. Jean Savage -- Chief Executive Officer And President

During Investor Day, we tried to lay-out what we'd expect on the returns to a cycle on average. And I think that what you really need to look at as a business is we are transitioning to being lease-focused and having our new production and our maintenance facility support our overall business model. We don't expect to stop providing new products into third parties. We think that will help overall with the footprint that we have. But again our focus is utilize assets we have first then we'll put new products into our portfolio from there and we'll service those third parties.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

And that -- we think our model will perform. We put out return projections and we think the platform the way it's configured with these businesses that we're going to be able to produce very attractive returns on equity.

Bascome Majors -- Susquehanna -- Analyst

Thank you, both.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Thank you.

E. Jean Savage -- Chief Executive Officer And President

Thanks.

Operator

Next question is from Matt Elkott of Cowen. Please go ahead.

Matt Elkott -- Cowen -- Analyst

Good morning. Thank you. Eric, I think, you said the 60% of the existing backlog is for delivery this year. Based on this and the current order and inquiry activity, which has not been translating into orders really as much as one would like. I guess, delivery this year could be materially lower than last year? Is that reasonable?

E. Jean Savage -- Chief Executive Officer And President

So -- this is Jean, sorry. If you look at the range..

Matt Elkott -- Cowen -- Analyst

Hi, Jean.

E. Jean Savage -- Chief Executive Officer And President

No problem. The range of delivery you saw this year it's from the low 20s to 40s right that's out there. If you look at existing backlog currently in the industry, realistically, it's proba Bly toward the 20 level or mid-20s not to the 40s. There would have to be a lot of orders coming in very quickly because it takes three months to six months for those orders once received to translate into the production.

Matt Elkott -- Cowen -- Analyst

But you still feel -- even if deliveries are lower for you guys this year you still feel confident about growing the operating -- the manufacturing margin?

E. Jean Savage -- Chief Executive Officer And President

We do. We've got a lot of levers in our hands that we can pull. And it's just incumbent on us implementing successfully those initiatives.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

It's all why we're trying to lower the breakeven point, right? And it should -- it will start to realize it as we produce our results throughout the year.

Matt Elkott -- Cowen -- Analyst

Got it. That's helpful. And Eric, can you elaborate on your comment that railcar securitization market that it's been at historically favorable levels? I think -- what are the drivers behind that? And what it could mean for you guys this year?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

I mean -- simply I'm saying the -- we accessed the securitization market for about $500 million last year and with a lot than we did in the fourth quarter. As we look -- as others have entered the market this year investors -- those investors are looking for yield and RevPAR assets provide an attractive risk-adjusted yield to them. And so -- and that is driving -- driven spreads down coupled with low benchmarks. So that's why we're seeing the financing that we're doing. And where -- what it means for us this year. I think when we access the markets, I think they'll be favorable and we will continue to lower our cost of capital.

Matt Elkott -- Cowen -- Analyst

Okay. And during certain phases in the past decade or so, there have been interest by financial investors and railcar assets looking for yield from domestically and then from Europe and from Japan. What are -- what's the kind of investor profile you're seeing now? Is it all of the above? Or does there -- is there any region that stands out where people maybe are starting to look at North American railcar assets?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Yes. I think when you look back over the last decade or so, we've certainly seen new entrants coming to the market and look for -- invest in railcars. Some of those have slowed in their interest. Others have increased their interest. It kind of depends on where their exposures are.

But we still see interest from investors that have yet participated in the market that are interested in coming into the market and -- for those same reasons. They like the risk-adjusted yields of the railcar leases. They like the diversity. They like the inflation hedge potential of the assets. And so we're still seeing that appetite from investors.

Matt Elkott -- Cowen -- Analyst

Okay. Got it. And Jean one last question. You mentioned that the inquiry activity has picked up significantly recently, but the translation into orders has not really happened yet. Any reason or theory you guys have about why people are not pulling the trigger yet?

E. Jean Savage -- Chief Executive Officer And President

So when you look at it, it's really still too early and the fuel pricing going up is causing some to hesitate. I think as you continue to see the availability of existing railcars out there showing or getting tighter, you'll see that pick up.

The other thing is uncertainty when you look at COVID-19, when you look at the fact that we still need to get a lot of people vaccinated then you look at the economic recovery from manufacturing. We've had some supply issues disruptions there especially in the automotive that's occurred. So all of that's weighing in, in people being uncertain and hesitating.

Matt Elkott -- Cowen -- Analyst

Okay. And just finally did you guys quantify the magnitude of the lease rate improvement in the fourth quarter?

E. Jean Savage -- Chief Executive Officer And President

So if you saw the investor deck the -- what we gave you from the third quarter was 21% negative. And for the fourth quarter, it was minus 13.6%. So inflection point it started coming back up. And as I mentioned earlier, there are signs that indicate, it will continue to improve this year.

Matt Elkott -- Cowen -- Analyst

Great. Thank you very much.

E. Jean Savage -- Chief Executive Officer And President

Thank you.

Operator

And the last question today will be from Steve Barger of KeyBanc. Please go ahead.

Steve Barger -- KeyBanc -- Analyst

Thanks. Good morning.

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Good morning.

Steve Barger -- KeyBanc -- Analyst

If I try and frame up everything you've said about opportunities and headwinds, it sounds like you think earnings can improve in 2021, but you don't expect a significant step-up, like 2021 is more of a stabilizing year. Is that fair?

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

We're trying to -- we've given you qualitative guidance. And I don't want to turn into quantitative guidance. So, just suffice it to say, we see it improving. You did hear that, we don't see industry deliveries being a big catalyst for improvement. It's more of a -- it's more of the self-help cost profile changes that we're making. And then, hopefully, we'll start to see demand pick up later in the year.

Steve Barger -- KeyBanc -- Analyst

Understood. As you've modeled out organic lease revenue, based on sequential changes in traffic and utilization rates, care to take a shot at what quarter you expect follow RD could go positive in 2021?

E. Jean Savage -- Chief Executive Officer And President

No. We're not going to guess on that. So like I said, we expect improvement to continue based on the great shoots we're already seeing. But we'll provide that guidance on a quarterly basis. And you'll be able to see that trend.

Steve Barger -- KeyBanc -- Analyst

Okay. And one last just kind of modeling question. Based on pipeline, as you take orders for delivery this year, do you expect a nice change in mix? Or is the revenue per current backlog that you have right now a good way to think about delivery mix for 2021?

E. Jean Savage -- Chief Executive Officer And President

So in 2021, I would expect that the freight cars will pick up first. That's where the demand is higher currently and where there's, less cars available. And that you would see tank cars lag that recovery.

Steve Barger -- KeyBanc -- Analyst

Got it. Okay. And can you talk more about Trinsight? How does that generate revenue? What is the benefit to the customer? And how long before that becomes material?

E. Jean Savage -- Chief Executive Officer And President

So from our Investor Day, we talked about the fact that we're going to see growth there. We think it's valuable to our customers. We are already seeing revenue. We're seeing a lot of interest in having a lot of discussions. It provides them data on. Where the car is? The health of that car and it can also provide them information to look at the cargo, that's there safety implications. So a lot of positives for them, those discussions are going well, but we expected modest growth during this three-year planning period.

Steve Barger -- KeyBanc -- Analyst

And so maybe I didn't understand is Trinsight a part of rail pulse? Are those two separate things? How do they relate?

E. Jean Savage -- Chief Executive Officer And President

They are separate. So rail pulse to the industry initiative, we are a big player in that. But Trinsight is our own internal information that we have from our rail platform. That we are using to help our customers overall with their supply chain.

Steve Barger -- KeyBanc -- Analyst

And what's different about rail pulse then that's exclusive of what you just said about Trinsight?

E. Jean Savage -- Chief Executive Officer And President

So first rail pulse was really just kicking off, so it's behind where we are on Trinsight. The other thing is we rail pulse have set the standards for the industry overall. We're a player in there so we can help -- have those discussions and make sure that we're involved for that.

Steve Barger -- KeyBanc -- Analyst

Got it. Thank you.

E. Jean Savage -- Chief Executive Officer And President

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jessica Greiner for closing remarks.

Jessica L. Greiner -- Vice President-Investor Relations And Communications

Thank you, Kate. A replay of today's call will be available after 10:30 a.m. Eastern Standard Time, through midnight on March 3rd, 2021. The replay number is 877-344-7529 with an access code of 101-513-60. A replay of the webcast will also be available under the Events & Presentations page on our Investor Relations website, located at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Jessica L. Greiner -- Vice President-Investor Relations And Communications

E. Jean Savage -- Chief Executive Officer And President

Eric R. Marchetto -- Executive Vice President And Chief Financial Officer

Justin Long -- Stephens -- Analyst

Allison Poliniak -- Wells Fargo -- Analyst

Gordon Johnson -- GLJ -- Analyst

Bascome Majors -- Susquehanna -- Analyst

Matt Elkott -- Cowen -- Analyst

Steve Barger -- KeyBanc -- Analyst

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