The railroad industry has gone through some tough times in recent years, and railcar manufacturer Greenbrier (NYSE:GBX) has found itself right in the middle of the difficulties. After seeing strong demand for tank cars due to high oil prices in the early to mid-2010s, the collapse of oil prices led to a quick plunge in customer needs for Greenbrier's railcars.
Coming into Friday's fiscal first-quarter financial report, investors wanted to see signs of healthy growth, given the rebound in crude prices and the ongoing adaptation of Greenbrier's business model. The company was able to deliver some growth compared to year-ago levels, but shareholders seem skeptical about its ability to meet what even it admits are ambitious business objectives for 2018. Let's take a closer look at Greenbrier and its latest results.
Greenbrier fights a tough environment
Fiscal first-quarter results reflected some of the difficult conditions that the railcar maker has had to face lately. Revenue of $559.5 million was up 1% from year-ago levels, but that was far short of the nearly 7% growth that most investors were looking to see. Similarly, adjusted net income of $26.3 million was higher by 5% from the fiscal first quarter of 2017, but the resulting adjusted earnings of $0.83 per share was less than the consensus forecast among those following the stock.
Greenbrier tends to look at sequential results, and the news was even uglier there. Sales were down almost 9% from the fiscal fourth quarter of 2017, with the company citing lower delivery volume due to timing issues. Gross margin fell slightly, and despite a slight drop in overhead expense, a big rise in tax rates and ongoing operational challenges at its GBW railcar repair joint venture weighed on profits.
Operational metrics for the business were also mixed. Railcar deliveries came in at 4,400, down from 5,200 last quarter. Orders picked up slightly, rising by 700 from three months ago to 3,200 units, but that was still well below the pace from early to mid-2017.
From a segment basis, Greenbrier's main challenge came in the primary manufacturing segment. By comparison, wheels and parts performed well, with a 4% sequential rise in revenue and slightly better margin performance. The leasing and services unit saw segment revenue rise an even stronger 8%, and although lease utilization fell slightly, operational efficiency boosted margins.
CEO William Furman was optimistic about Greenbrier's long-term prospects. "While the new railcar market in North America is challenging," he said, "broad-based demand for Greenbrier's products and services remains steady and we expect will trend higher as we advance through fiscal 2018." Furman pointed to "disciplined balance sheet management" that should help the railcar maker take full advantage of opportunities that might arise in the year ahead.
What's next for Greenbrier?
Greenbrier is still aiming to take full advantage of the strategic moves that it has made recently. In Furman's words, "We will continue integration of our new manufacturing investments and will continue to expand internationally," leaving the company "well-positioned to achieve its ambitious business objectives for fiscal 2018."
Yet Greenbrier didn't make any upward changes to its guidance for the full 2018 fiscal year. The railcar specialist still expects to deliver between 20,000 to 22,000 units during the year, including about 10% of production going toward its Brazilian unit. Greenbrier affirmed revenue expectations of between $2.4 billion and $2.6 billion and earnings projections for $4 per share.
Greenbrier shareholders weren't entirely happy with the report, and the stock fell more than 5% in pre-market trading following the announcement. Investors should expect Greenbrier to remain choppy until the company can stabilize its results and deliver on the promises it has made for sustained growth in the long run.