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Greenbrier Chugs Ahead on Tax Reform, Raises Dividend

By Dan Caplinger – Apr 9, 2018 at 2:31PM

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Find out what's happening with the railcar manufacturer.

Navigating changing conditions in an industry is always a challenge for companies, no matter how strong they are. Railcar manufacturer Greenbrier (GBX 4.61%) dealt with a big downturn in customer demand for its tanker cars when the crude oil market plummeted several years ago, and ever since, it has had to work hard to try to catch up.

Coming into Friday's fiscal second-quarter financial report, Greenbrier investors were hopeful that they'd be able to keep seeing growth from the railcar specialist. Greenbrier's numbers were solid, but even news of tax reform-enhanced profits and a higher dividend weren't enough to send the stock higher. Let's look more closely at Greenbrier to see what its latest news says about its future prospects.

Black tank car on a track of iron and white gravel in a green grass field.

Image source: Greenbrier.

Greenbrier keeps rolling

Greenbrier's fiscal second-quarter results showed how its business has continued to evolve. Sales of $629.3 million were up 12.5% from what it produced in the fiscal first quarter, and that figure was substantially higher than the consensus forecast for about $613 million in revenue for the quarter. Adjusted net income of $32.4 million was higher by 23% from the first quarter numbers, and adjusted earnings of $1.02 per share came in above the $0.97 per share that most investors following the stock had expected to see.

Tax reform played a huge role in lifting Greenbrier during the quarter. The company posted gains of $29.2 million because of the new tax law, which included revaluation of deferred tax attributes. That worked out to a positive earnings impact of $0.89 per share for the quarter.

Operationally, Greenbrier made steady progress. Orders were higher by 200 to 3,400 during the quarter, with a value of $265 million. Deliveries totaled 4,900 for the quarter when you include the company's Brazilian business. That put backlog at 24,100 units, with a value of $2.3 billion. Gross margin improved, and selling and overhead expenses rose at a slower rate than the company's top line, helping to lift Greenbrier's profitability.

Greenbrier's results were fairly balanced. Revenue in the key manufacturing area was higher by 13% on greater delivery volume, and a better product mix and greater syndication activity lifted gross margin levels. In the wheels and parts arena, sales climbed 14%, as wheel and component volumes were higher, improving operating efficiency. Only the leasing and services segment saw revenue declines, and even there, higher gross margin helped to cushion the blow for investors.

CEO William Furman was measured in his views about the company's results. "The North American railcar market is improving but remains competitive," Furman said, and the CEO pointed to Greenbrier's international expansion efforts as having been critical in that it "meaningfully contributes each quarter with new sources of revenue and diversification of backlog."

Can Greenbrier pick up steam?

Greenbrier is optimistic about its future. As Furman put it, "At the midpoint of the fiscal year, we are confident of achieving full year guidance, a validation of the strength and value of Greenbrier's market approach." The company is confident that its backlog and innovative products and services will help it compete more effectively with its rivals.

Greenbrier also backed up its report with a dividend increase. The railcar specialist approved a 9% increase and will now pay $0.25 per share on a quarterly basis.

Yet some investors were disappointed that Greenbrier didn't do anything to change its views on how the full fiscal year will go. The company still sees railcar deliveries coming in between 20,000 to 22,000 units during the year, and revenue should be between $2.4 billion and $2.6 billion. Greenbrier did boost its earnings projections to reflect the positive impact of tax reform, but the new guidance for $5 per share on the bottom line doesn't do much to reflect any gains from business activity.

Perhaps because of that disappointment, Greenbrier stock fell more than 3% on Friday and continued losing ground early Monday. At this point, shareholders seem unconvinced that the railcar company has made a complete turnaround, and they want to see how the company can take advantage of improving conditions in key customer segments before jumping on board in full force.

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

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