Greenbrier Speeds Up With Record Results, Dividend Boost

Image: Greenbrier Companies.

Railroads need railcars to function efficiently, and Greenbrier Companies (GBX -0.80%) responded to the surge in demand for railcars that accompanied the railroad boom in recent years. With railroads having had to retrench in light of changing conditions in the industries that they serve, Greenbrier's stock has taken a tumble, and coming into Friday's fiscal fourth-quarter financial report, Greenbrier investors were hoping that a big rebound in its business might be enough to turn the stock's misfortunes around. Solid results from competitor Trinity Industries (TRN 0.44%) had suggested that might be the case, and Greenbrier's record results confirmed that at least for now, its business is healthy. Let's look more closely at how Greenbrier did this quarter and whether investors can expect shares to bounce back in the future.

Greenbrier moves up the tracks
Greenbrier fiscal fourth-quarter numbers showed impressive bottom-line growth. Revenue rose 24% to $765.5 million, but that was actually slower than the 32% growth rate that investors had wanted to see, despite representing a new record figure for the railcar maker. Net income jumped a more impressive 41% to $66.9 million, and that resulted in diluted earnings of $2.02 per share, beating the consensus forecast by $0.23.

Looking at Greenbrier's major businesses, you can see the signs of continued strong demand in the key railcar manufacturing area even as other segments haven't held up as well. Manufacturing revenue is up by a third from year-ago levels, as deliveries of railcars have accelerated over the period. Yet wheels and parts sales have sunk by nearly 20% because of lower wheel and component volumes, and a 12% year-over-year rise in revenue from leasing and services plays a fairly small role in Greenbrier's overall performance given its tiny size, and it masked a small sequential decline resulting from a drop in revenue associated with maintenance activity.

For the railcar segment, Greenbrier's success comes with a couple of troubling signs. New deliveries rose to 6,200 during the quarter, up 500 from the previous quarter. The company received new orders for 2,900 railcars, with a value of $470 million. Yet backlogs for new railcars dropped to 41,300 units, sending total expected future revenue down $150 million to $4.71 billion. Order and delivery timing doesn't always coincide, and Trinity Industries saw a similar shrink in its rail group backlog during the quarter. Still, investors will want to keep an eye on this metric to make sure it doesn't turn into a persistent trend.

Greenbrier CEO William Furman mentioned the mixed trends but seemed confident. "While recent new railcar order activity has been dampened by broad economic factors," Furman said, "it is too early to determine whether the level of new orders will continue at this muted pace." Furman emphasized that Greenbrier will be able to adapt to whatever conditions prevail but that he believes that industry forecasts make a future uptick in orders likely.

Can Greenbrier keep up its momentum?
One avenue that Greenbrier is pursuing is geographical expansion. The company recently announced an order from a Saudi railroad company, giving it Middle East exposure for the first time. In addition, past moves to push in to Brazil have broadened its global reach, and with production facilities located in Poland as well as the U.S. and Mexico, Greenbrier has plenty of capacity to serve customers around the world.

Reflecting its generally positive view, Greenbrier gave guidance for its coming 2016 fiscal year. The company expects railcar deliveries of 20,000 to 22,500 units, and it expects that its revenue will exceed $2.8 billion, which will be better than the $2.7 billion consensus forecast among investors right now. Similarly, a range of earnings between $5.65 and $6.15 per share bookends the $5.89 per share that investors currently expect quite well. That favorable outlook is consistent with what Trinity has seen, as Trinity boosted its earnings guidance for 2015 on the strength of its rail segment.

Greenbrier also treated shareholders well. The company announced a 33% increase in its dividend to $0.20 per share quarterly, and it bought back almost half a million shares of stock, spending $21.8 million. With a newly authorized $100 million boost to its share repurchase program, Greenbrier will likely continue returning capital to investors at a reliable pace.

Greenbrier shareholders reacted favorably to the news, with shares climbing after the announcement. In the long run, Greenbrier will need the railroad industry to see better conditions overall to sustain its growth, but the stock's low valuation gives investors a margin of safety in considering whether the railcar specialist would make a good addition to their portfolios.