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Greenbrier Plunges Despite Record-Crushing Results

By Dan Caplinger - Jan 7, 2016 at 7:02PM

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The railcar manufacturer is still growing strongly, but investors aren't convinced.

Image: Greenbrier Companies.

Sometimes, the stock market doesn't react the way that you'd expect to company news. For railcar-specialist Greenbrier (GBX -1.02%), many investors would have thought that the company's stock would have skyrocketed after Thursday's fiscal first-quarter financial report showed considerable progress on its long-term goals.

Yet even record results and expectations-crushing performance on the top and bottom lines weren't enough to make shareholders happy, and the stock fell more than 11% in the aftermath of the report. Let's take a closer look at why there's such a huge disconnect between Greenbrier's share-price performance and its fundamental results.

Greenbrier hits top speed
Greenbrier's fiscal first-quarter numbers were nothing short of amazing. Revenue soared 62%, to $802.4 million, easily outpacing even the ambitious 53% growth rate that investors were hoping to see from the railcar company. On the bottom line, Greenbrier saw net income more than double, to $69.4 million, and that produced diluted earnings of $2.15 per share. That topped the consensus forecast among investors by more than $0.50 per share.

A closer look at Greenbrier's segments showed that the company still enjoys solid demand in its core manufacturing business. Sales from the manufacturing segment climbed 84%, to $698.7 million, overcoming sluggish performance in the company's two other divisions. Wheels and parts saw revenue fall 9% from year-ago levels, while the leasing and services business suffered a 12% hit to sales.

Yet margin expansion came largely from the manufacturing business, where costs of revenue climbed at a slower rate than sales. Selling and administrative expenses also rose at a relatively slow pace of just 8%, and that helped to send operating earnings up more than 170%.

Greenbrier's operational performance was more mixed than its financial results. Railcar deliveries rose to 6,900, up by 700 from the previous quarter. But backlogs fell by 5,300, to 36,000 units, continuing a trend from last quarter and sending estimated backlog value down by more than half a billion dollars, to $4.14 billion. Orders of just 500 units for the quarter were somewhat disappointing, although the company said that additional orders for 2,100 railcars came in after the end of the quarter.

Greenbrier CEO William Furman was pleased with the way the company answered the call in tough times. "This accomplishment is a testament to the value of our integrated business model," Furman said, "and our strategy to diversify our product offerings, create efficient, flexible manufacturing capacity in low-cost facilities, and drive more value through our lease syndication model."

What's next for Greenbrier?
Looking forward, Greenbrier expects some sluggishness in the near future. "We anticipate and are prepared for market conditions in which order and backlog levels will likely come down from their elevated energy-driven peak," Furman said. Yet the CEO also thinks that Greenbrier will be able to use benefits, like its geographical diversification and its manufacturing flexibility, to sustain good results, even in a market in transition.

Because of those positive aspects, Greenbrier largely reiterated its past guidance for fiscal 2016. The company still expects to deliver 20,000 to 22,500 railcars, with revenue topping $2.8 billion. Even with much-higher earnings in the fiscal first quarter, Greenbrier kept its full-year projections unchanged at $5.65 to $6.15 per share.

Yet investors remain skeptical of the sustainability of the railroad industry's strength in the wake of weakness in the key energy segment. Greenbrier rival Trinity Industries (TRN 0.15%) fell 5% in sympathy with Greenbrier, as Trinity faces many of the same potential challenges that Greenbrier does.

With Greenbrier stock falling more than 11% following the announcement, it's evident that shareholders don't have the long-term perspective that Greenbrier's leaders have about its future success. Although there's risk of a cyclical downturn, Greenbrier's drop looks like an obvious bargain opportunity for those who believe in the railcar builder's story for the long haul.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends The Greenbrier Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Greenbrier Companies, Inc. Stock Quote
The Greenbrier Companies, Inc.
$30.05 (-1.02%) $0.31
Trinity Industries, Inc. Stock Quote
Trinity Industries, Inc.
$26.21 (0.15%) $0.04

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