The Greenbrier Companies (NYSE:GBX) has gotten a bloody nose from the industry downturn that has sent demand for its manufactured railcars plummeting.
Greenbrier manufactures, repairs, and leases railcars, and has suffered along with competitors FreightCar America (NASDAQ:RAIL) and American Railcar Industries (NASDAQ:ARII).
For the second quarter, the company posted a $6 million loss, compared with an $8.5 million profit in the prior-year period. Much of the loss was due to the problems with its Canadian manufacturing railcar plant -- which it plans to close. Excluding the charges and operating losses related to the Canadian facility, Greenbrier posted a $4 million profit of $0.25 a share.
For the quarter, the manufacturing segment posted $119 million in sales on 1,200 unit deliveries -- a sharp drop from $185 million in sales and 2,800 unit deliveries a year ago. Margins for this segment dropped to 2.8% from 11%. Ouch. Excluding the issues with the Canadian facility, margins were 6%. Not as bad, but still, ouch. However, management thinks results have hit a low and anticipates that "the worst of the operating losses are behind us."
Management was not overly peppy, though, as it pulled its earnings guidance for fiscal 2007 without providing any new estimates. The market has since punished the company's stock, sending it down 19% since yesterday morning.
The company has made acquisitions in refurbishments and the parts and leasing and services areas to counteract the cyclicality of the railcar manufacturing business. So far, those other divisions are faring well; however, the manufacturing business' downturn is a major drag on the whole company.
Given Greenbrier's low cash balance (partly due to acquisitions) and high debt level, the company will need things to turn up to improve its liquidity. Recently, the company refinanced some revolving debt into a term loan, which improves near-term cash flow. Management also remarked that it believes it has ample capacity and the support of its banks.
All in all, it appears Greenbrier has run into a perfect storm. Although bottom-fishers might want to take a look, I advise that only investors who have a strong stomach and the willingness to do a high level of due diligence take a look at this one.
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.
