Please ensure Javascript is enabled for purposes of website accessibility

Greenbrier Keeps Chugging Along Despite Challenges

By Dan Caplinger - Jun 29, 2017 at 10:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The railcar manufacturer saw sales and earnings decline but celebrated stronger order activity.

The railroad industry is a cyclical business, and railcar manufacturer Greenbrier (GBX 6.01%) has had to endure a particularly tough time for its business in recent years. A surge in tank-car demand during the oil boom several years ago boosted sales, but when the bottom fell out of the oil market, customer purchases dried up quickly, sending Greenbrier into a harsh cyclical downturn.

Coming into Thursday's fiscal third-quarter financial report, Greenbrier investors were prepared for falling revenue and earnings. The railcar manufacturer's sales figures were generally worse than what those following the stock had expected, but better bottom-line performance and encouraging signs on the order front pointed to a better future for the company. Let's take a closer look at Greenbrier and what its results say about what's coming down the track.

Greenbrier tank car.

Image source: Greenbrier.

Greenbrier cushions the blow

Greenbrier's fiscal third-quarter results were mixed in terms of market expectations. Revenue plunged 28% to $439.2 million, and that was far worse than the 15% drop that most investors were expecting to see from Greenbrier. The hit to the bottom line wasn't nearly as large, however, as net income came in at $32.8 million. That was down just 7% from year-ago levels, and the resulting earnings of $1.03 per share looked quite favorable compared to the consensus forecast of $0.82 per share.

When you look at Greenbrier's results more closely, you can see the main sources for the company's revenue decline. The wheels and parts segment was the sole winner on the sales front, with segment gains of 9%. But manufacturing revenue took a more than 30% hit, and revenue from leasing and services fell by more than half from year-earlier levels. Gross profit weakened across the board as costs of revenue failed to match up with changes in total sales.

Greenbrier explained some of the root causes for its performance. The timing of railcar syndications and reduced deliveries that reflected lower production rates for certain types of railcars weighed on revenue, while higher employee-related costs added to overhead expenses. New convertible debt added new interest expense, which put more pressure on the railcar manufacturer's bottom line.

Yet the company's operational figures had some promising signs. Although railcar deliveries fell by a third to 2,600 units, Greenbrier got new orders for 11,000 railcars during the quarter. That took the company's backlog higher, rising to 31,000 units worth roughly $3.1 billion. Moreover, those backlog figures don't include orders for another 500 units from the non-consolidated Greenbrier-Maxion venture.

Greenbrier CEO William Furman was pleased with how the company's long-term plans are going. "Our two-part strategy is succeeding," Furman said, pointing to the company's initiative that "protects and grows our core North American businesses while we also expand internationally in promising regions for rail transportation." The CEO noted how the strategy has helped sustain gross margin figures and bring in massive order activity.

What's ahead for Greenbrier?

Greenbrier finalized three major strategic transactions during the quarter that should bolster future growth. It formed the Greenbrier-Astra Rail venture, and it expanded its commercial relationship with Tokyo's Mitsubishi UFJ Lease & Finance with a new supply contract. Greenbrier also boosted its stakes in two ventures, owning 60% of Greenbrier-Maxion and 24.5% of Amsted-Maxion Cruzeiro.

More broadly, Greenbrier does see tough conditions in the industry continuing. In Furman's words, "While we see emerging improvements in North American and European rail markets, we still expect a challenging commercial environment into calendar 2018." The company thinks its strategic vision will be able to carry it forward despite any obstacles to growth.

Greenbrier's guidance narrowed in a slightly positive way. The new revenue projections for $2.1 billion to $2.3 billion pulled in the top and bottom ends of its previous range by the same amount, but Greenbrier's earnings guidance for $3.45 to $3.65 per share raised the midpoint of the range by $0.05 per share. Deliveries of 15,000 to 16,000 guided toward the high end of the previous range.

Greenbrier shareholders seemed to have mixed feelings about the performance, with the stock climbing 2% in premarket trading following the announcement but then falling about 3% shortly after the regular session began. As long as industry challenges persist, it might remain tough for Greenbrier to convince investors that its long-term strategic vision will pan out favorably.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends The Greenbrier Companies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Greenbrier Companies, Inc. Stock Quote
The Greenbrier Companies, Inc.
$33.68 (6.01%) $1.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.