GATX (GATX) 22 Oct 192019 Q3 Earnings call transcript

Good day, and welcome to the GATX Third Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jennifer McManus. Please go ahead.

Good morning, everyone, and thank you for joining GATX’s 2019 third quarter earnings call. Brian and and Executive CFO; and International. by Executive Tom Vice today President-Rail President Vice and joined Kenney, CEO; President Ellman, President I’m Gokce Tezel,

our of Actual statements. or forecasts. trends from you’ll Please of materially results the differ statements that will consist some hear note during those discussion could today forward-looking information or

to no discussed reflect any XX-K for Form more please information, GATX’s revise circumstances. or refer For events or GATX subsequent to obligation assumes in forward-looking update the statements risk factors to XXXX.

Earlier $XX.X This $XXX.X today, share. diluted third million diluted or million to compares reported income GATX $XX period compares XXXX third same diluted million or of $XXX.X per XXXX million share. diluted Year-to-date $X.XX net per quarter $X.XX XXXX, to quarter of of $X.XX per per in net we income or XXXX. reported share the share. $X.XX or income This for net

results or include net year-to-date Alberta, benefit diluted a reduction tax year-to-date an tax Canada. deferred to net per XXXX impact in results of related rate with $X.XX closure XXXX enacted detailed a of include share $X.X maintenance per million $X.XX a negative of items railcar These in our XX the earnings facility Germany. release. on of costs to Page $X.X are or attributed million associated diluted share

certain challenging, of Now, I’ll oversupply load car given volumes been types. Rail briefly the relative has continued address each XXXX America segment. in The operating North to and environment car

quarter. However, strong we in produced results financial the

third XX.X% America’s utilization execution Due remained our North strong by at the the of to at fleet commercial Rail team, end excellent quarter.

rate was renewal XX.X%. success Our

were types near most quarter-to-quarter, types relatively fleet rate year weak. with lease flat months. which lease in Index averages most for The renewal LPI car long-term renewal remaining line our was for the with freight associated relatively of change with quarter, Price car remaining tank rates rates X.X%, and across full Absolute GATX’s is LPI term was expectations. average XX our the lease rates negative the Lease During

our committed continue diverse We base. customer to successfully a with agreements new supply from railcars place

railcars have We from already agreement. XXXX our supply agreement our and from X,XXX placed Trinity railcars XXXX X,XXX over Trinity supply

supply we railcars Additionally, XXXX Greenbrier X,XXX over from agreement. our have placed

delivery Our quarter in under is the scheduled supply third available of our agreements XXXX. earliest

utilization market International, America the historic in strong income secondary railcars Rail high The quarter million the demand income $XX.X a active of quarter, America’s North with GATX bringing fleet, in was is Europe for remarketing for to quarter. to Rail seeing remained Within across increasing the during XX.X% Rail remarketing at million. total year North $X.X the end.

quarter, approximately During Rail cars and the as million investment take GATX India grow was Rail to and GATX delivery third of continued International’s Rail fleet. Europe new volume the $XX.X

& of XX Rolls-Royce Partners is American Management’s excellent ASC Portfolio affiliates. supported strong types the market continued across Steamship by were performance performing the is engine vessels. is primarily Finance water levels. from and engine high is remains sales robust. well benefiting Company the currently Demand operating and results for

Year-to- date, quarter. Finally, have million. million for $XXX third for shares we during approximately nearly GATX shares over $XX.X XXX,XXX million repurchased approximately repurchased the X.X

Those open up it are hand it our prepared over Q&A. operator to remarks. so we for the I’ll can

Wells [Operator first from take And question Allison with Instructions] Thank we’ll you. our Poliniak Fargo.

Hello guys, good morning.

morning. Good

XX%. trending it’s supposed think X% in I to if It you I like seems a to Could little below bit America us? up maintenance correctly, touch expense be on for was remember that. North it

a it’s want just QX event? see than running Or if like if So just there’s you lighter little expected? a to

XX% X.X% it’s Allison. up the Brian. expense only entering And Sure, right, be And about we up third to It’s you’re would through say maintenance gross did quarter. X% XXXX.

more do Looking the quarter. year last fourth work versus expect in compliance tank we ahead,

maintenance more in churn commercial could drive favorable drive said that, But to spending. expense. expectations more little a that other still expect maintenance in fleet, that areas having We running we’re the and

as maintenance doesn’t will it gross expense we anyway. like look increase as much originally anticipated So

So for example, railroad repairs favorable to are running expectations.

savings And we’re our in productive closing locations. less-efficient actually, realizing of network. own maintenance our more from We’re some

addition, that we get maintenance more work enough the more net in look and efficient XXXX is and big attention, perspective a gotten doesn’t basis, at in repairs probably we from So in to of can we’re positive for it The and is revenue. such on a collecting it maintenance we’ve we’re a as seeing tend doing, identifying factor repair our that charge liability that work and systems well. contractually on mix

expect we good be we in up, new and much while experience that this as really when favorable repair with underspending revenue, as story not for and certainly understanding that’s the anticipate maintenance to for combine reasons I’ve said, gross So – a we original as expectation our maintenance well, net maintenance expected originally year. you

assuming that in like coming number revenue great. line elevating the other quarters, the guess That’s is And bit? which I similar I’m with in that a revenue, little repair that, is

Correct.

had Okay. a And anticipated. than Or number. then below trending thought? with just coming that bit is Again, true-up $XX little you that a like QX? seems was bit you a it little income, is in it’s thing same think last thought less what I remarketing sort million we of

last into could hate it and I don’t talking we know said approach fall doesn’t you why year, we story. the year’s the approach. and quarter-to-quarter I we could that’s coming timing believe, it the evenly said number, necessarily about we because control we Well,

Yes.

we’ll the I of market. last to healthy be expectation some say given number I don’t expect the but fourth a we what think but do probably quarter, number, there’ll what close still to year’s we won’t that get original But thought get the was. we

you much. so Thank Great.

Long Stephens. Justin next take We’ll question with our from

Thanks and good morning.

early your bit stable of we could just next I this on kind trends any kind to that So, was little wanted and not markets, up, going stable I of a stable year, wondering if continue? versus lease color freight sequentially. pretty comment sequentially. you rates absolute on believe those Jen, reason follow to and provide comment that more of And about both forward, tank about trend will as if remaining would XQ then to apply think

Tom, and I’ll is this take that. Justin,

little So played of year know, as challenges, variety optimistic. decreased as loadings, couple freight velocity, we’ve little tariffs, the calls, the the we talked the originally market’s out been generally as about railcar And has bit cautiously including stronger on expected, been PSR, XXXX tank entered of weaker. despite we’d we a last than railroad market you earnings car increased And a and has expected. car a bit

exception they this quarter, we the versus DOT-XXX are for QX to is about spot is rates flammable to due tank tank XXXX. last last lease ago. about addressing tank-car lease as about XX% quarter liquid types But the primarily those cars, versus we rates were about our tank quarter. XX% year a rates, as Specifically to And car. that, customer QX XX% most were up where lease car exception the rates lease same are the versus talked One discussed, same legacy but down QX to flat this newer for preferences XX%

year And all another QX Freight were around cars. versus versus ago. year we’ve a to down X% on is they average, and weakness XX% The about XX% persisting. that seen

sand, In basis. individual types, it’s more freight down cube types. year-over-year center However, for individual than a a car that some variability that even for are worth of beams small covered among on noting XX% car like frac lumber, there’s lot hoppers

a As consistent significant for some far for we positive we’ve macro more this exclude what in relatively those the X.X% approach with seen and types, favorable I year. trends declines loadings the more chemical freight down were like types car QX, types They freight had coal, are tank X.X%, pretty products. a Railcar car of so you QX mentioned. variety than car if comparison key petroleum

to the environment expect QX. be would in we similar So

And backlog. view needed sustain seeing times car have tricky Okay. one time watching to That’s Thanks. that in in in just pretty you’re pricing tank on you the there it’s closely at and are looking multiyear the what data lead that’s But a industry because item share backlog, know, in currently I the really the that multiyear you’re seeing helpful, some little lease we’re some order on your there, and Tom. market? tank can orders that car and I you is know lead today orders

Yes.

you nine To over of to stable. has be over production tank them to up what come around been general, this The bit The even enough backlog lead to about somewhat it course the given car Right for for cars earlier In tank for I XX as has it builder things actual backlog range it’s types, would is you’d a about nine availability get say want And expected know, little month QX railcars, months of call is much beyond That a get now, year. there’s cars where XX,XXX car numbers half pockets up, shorter. time more the the were shortening to doing. to look sort still around now, most tank. to Freight months. nine on we’d was moved are would week. challenges. but run a go I and XX- year. appears between see keep the some of So which of depending tank

Okay. On question. last income, were what you XXXX curious, Thank remarketing makes change for your did modeling versus expectation final just sense. expecting And one just quarter?

short of we call, total. the on a recall mentioned quarter’s XXXX be last you If might little we

So our expectation. reflects guidance that

time. the Appreciate Okay, perfect.

next take Elkott our from question Matt We’ll Cowen. with

mentioned in hesitant use highly And the Good variety that makes – you liquids morning, mean tank hearing for you newly specifically flammable hearing? DOT-XXX? for guys Tom, the you. Is Pacific a invest did we customers’ of you that that variety? car. preference it like the are Union it retrofitted DOT-XXXJ, thank the this start that to demanding maybe – are the DOT-XXXJ back. BNSF of something strictly does Is may any Because while DOT-XXX for built

great are Those Yes. points.

So it’s first of a all, sequence.

for correct legacy general customer XXXR, the the that XXXJ, absolutely preference the car by followed is the by type. followed You’re

As cars retrofitting you because ultimately we go were go the know, would early that preference announced confident GATX liquid of had flammable we from intention of customer – would no legacy that that. away very any on

GATX dollars that a DOT-XXXJ relatively a versus the on as the inexpensive you different retrofit the thousand were already far can in just jacketed. cars there’s retrofit not depending that CPC-XXXX R, participated has of two ways or retrofit to jacketed. car couple the is As whether

much has just talking CPC-XXXX And started, We we that away that. evaluate for exactly stayed first pursue more away – competitors were you’re it I be we made to the the more GATX definitely you’re retrofit, have retrofit further highlighting. And retrofitting retrofit non-jacketed the our non-jacketed we when cars for an expensive the inexpensive reason expensive would had the stayed a and from exactly that we have very this indicated know of car it items of would from. that and area has about the that but unlikely that lot doing

both Tom, very us helpful. DOT-XXXs, guess, you fleet And your that’s many in remind can R have J, and right how now? you I

We retrofits. XXX inexpensive really, has have we have less DOT-XXXRs, probably about than X,XXX DOT-XXXs mentioned, as and Tom are very those the and

Jennifer. question Thanks, number And guys for total think about Can a renewing us had it. other in give Got next my cars XX,XXX I is, you you XXXX. year?

you where give it’s our to be years, we lower can call. But last where that to to were We’re closer been few that the actually level. this not at assume going you year directionally, versus a it’s to going QX at until

is certain does markets a to – any outsized pretty the next And it renewing, any of percentage cars Okay. it is or thesis – year have diversified?

of diversified assume I car that short we’ve going publicly, wouldn’t been. be anything. we’ve has been we’ve would diversified what in It’s going area to on talked fairly anticipate been with, it just has that that dealt it’s about coal one we’re renewals The renewing. Outside because our I very though, those. that as

with has you and Or then reason are displacing railcars? rail it and both Does of competing financial the the despite utilization worsening is utilization – why of operating at in the And reason talked your industry. other? guys more Part traffic that or Okay. owners lessors declines competitors. you one part strong fleet effective the about is of to stayed apply

long. Well, XX% I been mean all overall, year utilization’s above

good a we’re who So regardless pretty job, we’re against. doing competing of

Great. Thank you very much.

our We’ll Buckingham Brooklier question from next take Research. Matt with

Thanks. Good morning.

Good morning.

Still trajectory a look we it so gains, market, where where if do in bit very your at sounds number, it could expectations. gains little be XXXX? sense, in a a have below asset the just like asset considering the but Yes, just solid follow disposition wanted now, you we’re of to on, came disposition at directional

Yes.

So quarter’s in about the general, question provide just XXXX we’ll the like guidance last expirations, in call. on next

range the look we at And LPI originally you the if in Okay. the then Fair change provided. enough. within

For the is of year quarter? there was the kind but of would been or out the current extraordinary anything down in had if seven-ish that was likely call market reflective this and this anything, you number there

Yes.

to quarter. at So, as you not people we too closely know, always look caution an individual

the the that full were indicate those negative QX, and we’ll and For in between we QX, expected that X.X%. And year, three be numbers XX% X.X%. At X.X%, we range. positive somewhere right X%. positive of three negative beginning the QX, year be quarters, negative obviously, the to

read wouldn’t quarter given I two. in the So anything into this particular other versus

looks Okay. an Helpful. on the $XX I in and where targeted we of if as original should that touched Thanks. not on It’s a much you still as know your million And but side, down but there thoughts went Maybe, number. don’t shake as us out. just had like give then the savings SG&A bit it of the fourth quarter terms lastly maybe I think, you of, this, the little trending year. about update maybe into

maintenance we into maintenance And last Year-to-date, absolutely organization the on quarter’s to partially we to also related higher-than-expected improve $XX which dollars our with call. the more we we’ve compensation we bit we $XXX first that of originally at correct. be thought. the commented also XXXX’s our the and total to of little cost sales general, lease line savings the through XXXX incentive is in million, will restructured year renewals. in might million than capabilities, in just And goal we’re our expectations. in continue quarter you’re and the to to commercial But briefly Yes, about million Coming higher said roughly tends three. end as than mentioned, quarters, up for be on few first year, those due the we short our SG&A, fall we million, success of in fourth a than $XXX a this on lower expected as three feel to

for we’ll all those $XX be achieve million down, reasons, our So although probably we goal. won’t

from Bergner next Justin with We’ll take question G.research. our

morning. Good

morning. Good

I have a handful questions of here.

Jennifer quarter? off, in came you provided them they us and a could think were repurchases what maybe you I fast. just First the the Tom, but remind third out little

Sure.

quarters, Earlier approximately intention an the overall we we million, our done we’ve are highlighting the in first $XXX buyback, still that. current expect year, $XXX just is million So, stock to remaining. which and million authorization million. $XXX of for Through in the do $XXX indicated XXXX, three to

$XX.X great. Okay, was And third did million the that? then quarter, or in mishear it XXX,XXX shares for I

right, that hear did You Justin.

Okay.

XXX,XXX shares.

Okay.

think seeing? of market. update the call, are do was sort weaker us seeing that of the market to that of of I the purchases forward more how you primary there nature the competitive interest Could What how in an looking the stands? the or sort of advantage or secondary looks? opportunities car you’re on not on last taking And

Yes.

opportunistically. look So, market, any downturn certainly the a purchase to time that is in we there

at are of so that we you enough those out us. opportunities attractive the how If far, economics able been to haven’t played that find look year to has

to CapEx that several that., sort of the we’d year So like of, now, So, looks like going for something last CapEx, or transaction the $XXX years million range. opportunities. $XXX of extraordinarily, our transaction years lookout But those right we the we’ve in be that mid certainly, historical end some the our like be – to before a transition materializing, couple do and GE at absent in years boxcar last it’s million to the Element on the higher where than other range been the, between expect

seeing in sequential last you’re maybe lease improving? – tank might that case? some seeing Brian rates any Is there think that highlighted cars the of of car you terms you. categories rates, I where are And we’re the lease improvement. categories Thank then smaller there be quarter, sequential Okay. still some some that

staying in flat. Yes. The the the that really strongest of they’re part it’s tank strongest and cars is market non-flammable

that kind material any increases. So there of I is having car spot highlight rate no particular type would as

about then You describe sales. driver, the transpiring? more in of year-on-year I of the lease strong Okay, bit third-party just on sort the it the a assume that’s what’s engines leased? driver, engine the more Is maybe mentioned joint venture, being the lastly, little that could Or of understood. engine Rolls-Royce And improvement? is primary rates you sales, existing

Yes.

you comparisons are gains, the at meaningful more engines because very of year-to-date So, And slightly. leasing just when the the the at the look and of because we year-to-date maintenance both quarter-to-quarter. Rolls-Royce, timing than on certain and just expenses, gains of on look while those to up remarketing for Rolls, remarketing comparisons they’re much tend

there you’d of horizon dynamic? And on is expect that that could sort Okay. the change Or is that that to continue? anything

to for the we underlying Yes. be performance. that very fundamentals business, are strong continuing expect good and

for taking Thanks my Great. questions.

from our question Steve O’Hara next &Co. take with We’ll Sidoti

good morning. Hi,

morning. Good

Just I on I down, I’m that revenue sequentially. about think, more due – the Or North and the in re-lease number of of so Was just looks the – revenue like that and of locomotives to to Rail terms is forth? sequentially. X% wondering was due the was in there, like timing boxcars? within down, you Average when cars revenue guess get X% America, about decline was and more cars it

you rates. of to tie at the relatively that, like lease short given leases, change going time periods on a revenue of look of move to be the just any moves to you’re Yes. revenue long-term When not kind nature able in

number active moves are like on of cars lease. because short-term the that of total So,

factor been longer your has has any it. business? on just Or you Thank – the if then has portfolio anymore? or RRPF, max of been a sense. there of that being terms Got due the Okay. know benefit it the in – there’s – issues the any do fleet to And you, it just fleet, not makes – for really benefited for expected, out than that the

hasn’t impact virtually. There already term really utilized any short It’s No. been that XXX% business. on

to had there. So nothing be there’s

line? And what’s talking maintenance – then income primarily that and revenue expense in just were earlier, you about gross looking of talking helping kind that you the okay. below? the Is the of is line versus Okay, guess, line I – about, the that’s maintenance on at offset – that the the statement getting were some within in, in other maintenance the when the expense on revenue net, you’re

correct. That’s

so something – – taken then able occurrences that now? guys more you. is? paying you’re get is your is why outside phenomenon is different And – you’ve Thank customer there Is flow-through because then where you Okay. to that a this – is maintenance it this newer Or or for in-house more that just work maintenance you done maintenance? that to

really it’s leases. not with It’s No. third-party revenue. it’s maintenance But existing liability customer the revenue,

it much work that And the charge contractually. just lining where has a be things were the whether we a last, efficient or corrosion charging getting liability about more more of it. for, nature has able that and So year for this damaged certain changed or we’re customer to that of identifying and the

I do expect bullish general curious And it the touch in you outlook have more horizon? to you base on economy? kind Just Okay, have where guys the maybe stand. do recession then maybe, mean, points. lastly, of guys all the mean, the okay. you your on of your just, on see you economy maybe – Are you economy a – I what’s for pretty of you terms good or

so, the we and customers demand’s And you saying I say good, don’t crystal how that time, see our are can they’re But it acting. lousy Well, still economist. and track pretty ball. what loadings it’s I I’m all a do basis have I some our losing last say year-over-year the feel But starting like every in not quarter steam. will utilization. or reflected a to railcar thing. it’s is down this in Obviously, high good quarter it’s extremely fleet

closed more they as down. If year, you of they even term and steel imported the there terms favorable our year short steal went little they’re bit benefited see some ASC, of between look This at relief we starting last customers demand things asked steal tariffs to when on serve, from delivery. well. benefiting, that a blast operating U.S. furnace conditions, the a another that for of in higher one also actually went Steel you’re on as but happen

some economy enough see Not little there, that, that out of release. and quoted estimates there’s to states in a our what in the to and unsettled feeling our the more that’s some change starting you’re we but press of in

trade other So I the could if I’ll recession’s three know it don’t say and then that in deal a have coming. and way. we’ll weeks, go

said tank out sits like are getting So, very say hesitant uncertain increase, Tom decisions to I there but make this and it just just level, car there. long-term backlog people more still. see to as we’d earlier, the it’s And around

until So to on that the hard it’s turns around, bullish be economy.

right. all Okay, Thank you.

questions the no in at McManus. have would we to I Jennifer turn And Instructions] to back like queue this [Operator over it time.

I’d everyone this questions. like thank for participation Please Thank you. call follow-up me contact morning. their to the on with any

concludes This participation. your you Thank call. today’s for

now may disconnect. You