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Greenbrier Celebrates Sequential Growth, Boosts Dividend

By Dan Caplinger - Oct 27, 2017 at 9:26AM

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The railcar manufacturer is still dealing with tough year-over-year comparisons, but it sees a stronger fiscal 2018 ahead.

Railcar manufacturer Greenbrier (GBX -0.95%) has been going through a cyclical downturn for several years now, and investors have waited nervously to figure out when key business metrics might be able to pull out of their descent and start growing again. Changing conditions in the energy industry during 2015 led to a dramatic downturn in demand for the company's tank cars, and even as crude oil prices and production levels have stabilized and started to pick back up, some have been skeptical about Greenbrier's growth prospects.

Coming into Friday's fiscal fourth-quarter financial report, Greenbrier investors expected revenue to rebound from year-earlier levels, even though they believed that profit would remain under pressure. Greenbrier's top-line results weren't as good as some had hoped, but earnings success and upbeat guidance were enough to please many shareholders. Let's look more closely at Greenbrier and how it did during the quarter.

Greenbrier tank car on a track in a green grass field.

Image source: Greenbrier.

Greenbrier rides high

Greenbrier's fiscal fourth-quarter results showed the incremental gains that the company has tried to make recently. Revenue came in at $611.4 million, up by nearly two-fifths from the fiscal third quarter, but representing only 3% growth compared to the fourth quarter of fiscal 2016. Net income of $23.7 million was down by almost 30% from year-ago levels, but the resulting adjusted earnings of $0.86 per share were quite a bit better than the consensus forecast for $0.78 per share on the bottom line.

Greenbrier focused on an extremely short-term look at its business, signaling its intense concentration on its turnaround. The company explained that higher deliveries helped bolster revenue in its manufacturing segment by more than three-fifths, doubling to 5,200 during the quarter, but gross margin in the segment fell dramatically because of the shift in product mix that made up those deliveries. In the wheels and parts segment, revenue dropped 12% sequentially, and weaker margin weighed on the unit's bottom-line results. Lower volumes of externally sourced railcars hit Greenbrier's revenue from leasing and services by a quarter, although higher-margin figures cushioned the blow to the overall company's results.

Greenbrier also had some trouble in keeping overhead expenses under control, as selling and administrative costs rose 10% sequentially. The railcar manufacturer said that expanded European operations added to expenses, as well as higher legal and consulting fees related to the company's strategic initiatives.

Order activity was a bit disappointing to finish the fiscal year. New orders amounted to just 2,500 units, down from 11,000 during the fiscal third quarter. Greenbrier did say it got orders for another 1,400 units in September, but a backlog of 28,600 units with estimated values of $2.8 billion was down substantially from where it was three months ago.

CEO William Furman pointed to the long-term strategic victories that the railcar manufacturer won. "This positive financial performance was achieved by successfully executing on Greenbrier's strategy to foster and grow its North American business," Furman said, "while simultaneously expanding to global markets." The CEO said Greenbrier's market share rose during the year, and full-year fiscal 2017 activity levels pointed to a solid rebound.

Can Greenbrier keep moving forward?

Greenbrier is generally comfortable with the opportunities it has ahead of it. Furman noted that backlogs include railcars of nearly every type headed for geographical areas across the company's network. In his words:

As we grow Greenbrier's core North American business and see a larger contribution from international operations, we expect more deliveries to produce greater revenue and higher [earnings per share] in fiscal 2018.

More specifically, Greenbrier's guidance for fiscal 2018 was encouraging. The company expects deliveries of between 20,000 to 22,000 units during the year, with about 10% of those going to the company's Greenbrier-Maxion unit in Brazil. Revenue should come in between $2.4 billion and $2.6 billion, and Greenbrier thinks it will post earnings of $4 per share for the year. Both the profit and sales figures were well above the consensus estimates for most investors following the stock.

Greenbrier also gave its investors a dividend boost. The company will pay $0.23 per share on a quarterly basis going forward, up from $0.22 per share previously. In addition, Greenbrier extended its authorization for stock buybacks until March 2019, giving the company greater flexibility to repurchase shares if it wants.

Greenbrier shareholders didn't immediately respond to the announcement, as the stock didn't move in premarket trading following the announcement. Yet with the railcar manufacturer picking up speed in its turnaround efforts, investors can hope that Greenbrier has found a successful strategy it can follow in the years to come.

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