While the rebound in Textainer Group Holdings Limited's (NYSE:TGH) revenue continued in the fourth quarter, earnings went into reverse due to higher expenses. That said, the winds of momentum are clearly at the company's back, with it expecting profitability to improve throughout 2018.

Textainer Group Holdings results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$129.3 million

$120.2 million

4.3%

Adjusted net income

$14.8 million

($13.4 million)

N/M

Adjusted earnings per share

$0.26

($0.24)

N/M

Data source: Textainer Group Holdings Limited.

A sailing container ship at sunset on the sea.

Image source: Getty Images.

What happened with Textainer Group Holdings this quarter? 

  • Lease rental income rose to $116.3 million, which was a 9% improvement from last year's fourth quarter and 4% above the third quarter. Management fees also improved year over year, rising 11% to $4 million, though they did slip about 4% from the third quarter. The company recorded $8.3 million in gains on the sale of containers during the quarter, which was an improvement from $3.2 million last year and up from $8 million in the third quarter. However, proceeds from trading containers were just $699,000 during the quarter, down from $6.5 million last year and $1.2 million last quarter.
  • The year-over-year improvement in revenue helped fuel a significant increase in profitability from last year's fourth quarter. That said, Textainer's adjusted net income slipped from the third quarter when it pulled in $18.6 million, or $0.33 per share, due to higher expenses.
  • The company continued plowing capital into expanding its fleet, investing $625 million in new containers last year. Textainer was the second-largest purchaser of containers among its peers, though it was well behind industry leader Triton International, which had ordered $1.6 billion of new containers for delivery in 2017 through the third quarter. Furthermore, Triton had also pre-ordered another $100 million for 2018. 

What management had to say 

CEO Phillip Brewer commented:

We continue to see strong operating results and positive momentum leading into the new year. Lease rental income increased for the fourth consecutive quarter and is up 8% compared to the first quarter of the year as we benefit from new container investments and further improvements in utilization. The impact of these investments will grow going forward as more new containers are delivered and picked up by our customers.

As Brewer pointed out, Textainer's lease rental income kept up its steady recovery in the fourth quarter. That should continue throughout 2018 as the company benefits from the tailwinds of higher rates on leases coming up for renewal, a further improvement in the utilization rate, and the impact from all the containers it bought last year.

Looking forward 

Those factors are driving the company's bullish outlook. Brewer said:

We enter 2018 with great momentum and the support of a favorable market environment. We were the second largest purchaser of containers among our peers in 2017 and have the size, resources, and liquidity to continue investing in new containers while returns remain attractive. We expect our performance in the first quarter of 2018 to be better than the fourth quarter of 2017, with increasing profitability as we move into 2018.

That said, Brewer did point out one potential headwind to watch, which is that yields on new leases have "slightly moderated as competition increases." Not only did leading rival Triton International buy a boatload of containers in the past year, but others have started spending money to grow their fleet as industry conditions improve. However, with the overall outlook bright, Textainer expects 2018 to be a more profitable year.

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