The rebound in Textainer Group Holdings Limited (NYSE:TGH) took a giant leap forward in the third quarter as revenue kept rising and the company started making money again. However, that appears only to be the beginning since the company expects a continuation of the improvement in the container leasing market to drive results much higher in the coming years.

Textainer Group Holdings results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$125.6 million

$120.4 million

4.3%

Adjusted net income

$18.6 million

($53.1 million)

N/A

Adjusted EPS

$0.33

($0.94)

N/A

Data source: Textainer Group Holdings Limited. EPS = earnings per share.

Shipping containers on a ship at port with the sun rising in the background.

Image source: Getty Images.

What happened with Textainer Group Holdings this quarter? 

The turnaround has started taking hold:

  • Lease rental income rose versus the year-ago period, when the bankruptcy of container line Hanjin pulled the company deep into the red. Furthermore, revenue was more than 5% higher than last quarter. Driving these improvements was a 3.4% increase in lease rental revenue from the second quarter thanks to better utilization, higher lease rates, and a larger fleet.
  • In addition to those factors, Textainer recorded a 35.6% larger gain on the sale of containers than it did last quarter as well as booking higher management fees. When combined with lower expenses, it dramatically improved profitability.
  • The company continues actively investing in expanding its container fleet, spending $500 million so far this year. It noted that the leases secured for these new additions would generate excellent returns that should start showing up in its results in the coming quarters.

What management had to say 

CEO Philip Brewer commented on the quarter by saying:

We are excited about the significant improvements in our financial performance and favorable overall market conditions. The positive trends reported previously continued with sequential improvements in lease revenue, gain on container sales, and direct container expense. Our third quarter results mark a return to profitability which we expect to continue going forward. With Hanjin behind us and our refinancings completed, we are well positioned to take advantage of the attractive market environment.

One other thing Brewer noted about the current market conditions was that rental rates and container prices are "at their highest levels in many years." The company can thus earn strong returns on new leases while selling older containers for a good value.

Looking forward 

Textainer's CEO said he was "very optimistic about the outlook for both Textainer and our industry," noting that the supply of new containers would remain tight, which should keep prices up. The company has several leases expiring in the coming years that are well below current rates, which leads Brewer to believe the company will benefit as these agreements come up for renewal. He pointed out that "if current market conditions continue, as these leases reprice any increase in rental revenue will flow straight to our bottom line."

Matthew DiLallo owns shares of Textainer Group. The Motley Fool recommends Textainer Group. The Motley Fool has a disclosure policy.