Textainer Group Holdings Ltd. (NYSE: TGH) reported first-quarter results before the opening bell on Tuesday May 5th. The world's largest container leasing company reported mixed results -- utilization was the strongest it has been in years, but the company faced weak pricing and slower than expected demand. While the overall results are solid, headwinds are muting the company's ability to grow earnings in the near term. That being said, its longer-term outlook remains much more positive.

A look at the numbers
Textainer's first-quarter revenue grew 2.8% to $139.2 million, which was about $3 million less than analysts were expecting. However, lease rental income growth grew 7.1% to $129.2 million. The weakness was in revenue from trading container sale proceeds and the net gain on the sale of containers, which together fell $4.5 million from the prior year.

Those weaker sales, along with an overall downward pressure on pricing, led to a year-over-year drop in adjusted net income. Quarterly adjusted net income of $40.5 million, or $0.71 per share, missed analysts' consensus estimate by two pennies per share. Adjusted net income was also below last year's first quarter, when the company reported $59.1 million, or $1.04 per share; however, that year-ago result was boosted by a one-time $22.7 million income tax benefit.

The company was pleased with its performance given that the first quarter is traditionally its slowest quarter. One highlight was particularly strong utilization, which increased 3.2% year over year to 97.6%. That was the highest level since 2012 when the company had a smaller fleet.

A look ahead
Textainer faces a number of headwinds in 2015, including falling prices for new and used containers. Furthermore, demand for containers has been slower than expected and the company has stiff competition for the lease-out opportunities that do become available. Because of this the company anticipates downward pressure on container rental rates.

However, management expects the company's growing number of containers to offset these challenges, and plans to spend $415 million in 2015 on fleet expansion. Other positives include declining interest costs and a high utilization rate. These boons are expected to mitigate much of the decline in rental sales and pricing, leading to solid results in 2015. Textainer also expects that investments being made today will give it an edge over its rivals to benefit over the long term from improved future market conditions.

Investor takeaway
Textainer's first-quarter results were a bit mixed -- the company's utilization was strong, but it faces pressure from a very competitive marketplace. However, it sees a much stronger mid-to-longer-term market, so it is making investments today to position itself for that future.

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