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GATX (GATX)

Participants
Shari Hellerman Direct-Investor Relations
Brian Kenney President and Chief Executive Officer
Tom Ellman Executive Vice President and Chief Financial Officer
Allison Poliniak Wells Fargo
Justin Long Stephens
Steve O’Hara Sidoti and Company
Justin Bergner G. Research
Matt Elkott Cowen
Steve Barger KeyBanc Capital Markets
Call transcript
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Operator

Ladies and gentlemen, good day, and welcome to the GATX 2021 First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Shari Hellerman, Director of Investor Relations. Please go ahead, ma'am.

Shari Hellerman

David. you, Thank and quarter everyone, for GATX's joining Good call. thank first earnings XXXX morning, you I'm Brian today Executive joined by Vice Tom CEO; President Ellman, and and CFO. Kenney, President and hear some the consist that forward-looking statements. discussion note Please of information you'll today during of will our or results forecasts. differ trends from could those Actual or statements materially

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

virtual Before GATX I from April recap Shareholders net of that to quarter format. held a.m. $XX.X first only operations Meeting of diluted to reported our continuing operations a and $X.XX quarter income at million, compares Annual million, XXrd share. like remind $X.XX meeting provide This diluted a XXXX net Time, from our continuing Friday, first quick $XX.X quarter results, be share. income Central or I per per of on or first Earlier XXXX X:XX is scheduled today will everyone in

Our cars. At XX.X%. North market utilization the consistent expectations environment with first was quarter renewal an operating to competitive was Rail rail end Rail North remains at due America's oversupply rate America, XX.X% the into of quarter ongoing results our success coming are year. our fleet and

negative XX.X% average quarter, rate Lease an renewal Index change with the the was term GATX's During months. of of renewal XX Price

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

Supply cars Agreement X,XXX from from and rail X,XXX Trinity Agreement. our XXXX cars Supply rail placed have We our XXXX Trinity over our

XXXX all deliveries rail Greenbrier our X,XXX XXXX supply from for agreement. placed. supply Virtually Additionally, been we've placed nearly agreement have cars

high additional cars grow we North by with the asset indicated outside over serve X,XXX supply our agreements has American in our to look delivered we opportunities rail to our in order customers rail commercial to team quality cars. placed be to As base continue for Today, release, our of mid-XXXX.

secondary our with steady remarketing income volume International, utilization of see market sales Rail Rail also quarter. continue Europe on demand We continues diversify to to over during at the $XX healthy across Rail Within through rail car XX.X% GATX India the to as and quarter fleet a Europe Rail the end. optimize million high first approximately fleets. International's remaining and in $XX.X at capitalize their was fleet quarter GATX Rail investment GATX expand generating million

Portfolio to Turning Management.

the passenger commenced RRPF. by we profit January as Rolls-Royce segment negatively COVID-XX Capitalizing opportunities, will affiliates, that spare to investment impact quarter a market on with in of managed to conditions program First promising aircraft was growth acquire and year-over-year, driven by of this direct engines assets in be Partners primarily continues Finance global down air traffic. challenging year,

year-to-date the we total been in played this Our back Q&A. can it leases is prepared to have hand investment line are $XXX long-term remarks. airline approximately for strong the program on customers. I'll our operator, engines million. those And open so All with

Operator

first our Poliniak Fargo. with from question And [Operator Thank comes Instructions] you. Allison Wells

Allison Poliniak

good morning. Hi,

this of I due primarily there know point, challenging? it that car way types. too to number, it sort the to related the in is versus back Is it's dissect energy going note others Just release or mixed to LPI did you was versus that the energy but a a at

Tom Ellman

is Alison, Tom. Hi, this

a too some a always transactions small talk of that quarter’s look and indicate not about provide always year an when was really into cause much LPI, overall unusual number trying can the remains not since information into we XX% at because to single you We reading X% LPI on we get As our know from a try guidance going perspective. what's granular too market the to to And volatility unchanged. it's on quarter-to-quarter.

Our expectation for year. be to the for to XX% continues the the full still X% year of remainder

market lease want about, the you sector across course, rates, to Of whatever continues LPI weigh to talk the down rates. energy

Allison Poliniak

another was weighted should in maybe a to the back we assume way, more And that the quarter, that into energy balance the bit it year just little it. terms this there renewals asking up to XX%? of get Got versus of X%

Tom Ellman

specific that Allison conclusion not I the remainder year. would this quarter Yes, necessarily waiting of draw about the versus the

Allison Poliniak

rates, way And understand, how just kind it. now? renewing in of are then to help today trends off is Got relative of lease to far of it. any market terms general you we what Got right are and us there normal

Tom Ellman

that for averages. below to long-term Non-energy down bit remain rates car cars related a tank related Lease down Sure. the well be related down to XX% types the are or than cars XX% that freight rail energy then versus with most non-energy XX% long-term averages. versus cars and averages long-term more continue about more

Allison Poliniak

Got it. I'll pass it Thank you. along.

Operator

you. Thank

Justin with from Long Our next Stephens. comes question

Justin Long

morning. good And Thanks.

I of and line on in talked that here seen today? you've comment questioning, but about what Just freight lease around improvements you could and magnitude both know you some that, of put release, for to order follow-up Tom, sequential that rates, and the maybe tank

Tom Ellman

Certainly.

quarter. in car So, would increase car X% it's of about the you lease it's X% quarters alluded types, to that most third market the row most somewhere been as freight And a whether of tank to noted, increases. for tank Justin, lease again rate And for quarter types say the range. were rates very this in we've this is that each up up I modestly and freight. an small or

Justin Long

detailed comment that's change quarter were expectations coming full with first quarter since your January? or either line the And fairly in negative Okay. results notable into Last year That's within assumptions year. the guidance by positive gave you the some didn't those helpful. the I some that guidance segment, anything of segment, was made and by know changed

Tom Ellman

first proceeding is Just quarter the we much expected. pretty really as

into viewpoint that the nothing year. our to there's point in coming changing So, terms I would of

Justin Long

stepped you into spare you you thinking just dollars for pipeline investment But and up business, to seeing space, seeing from talk Just acquisition be what you about activity Are on out that. update car could in the up? some a engine helpful. And pick market? last Are is to the are general you Okay. come one alluded deals, I seeing there? would the you the specifically me deals environment. larger about know had rail

Brian Kenney

to Brian. are it’s opportunities Justin obviously, sell willing There's consensus trying the I the grips fleet. be of individual to some with Yes, never larger that valuation to think of would portfolios their still come but

state say I'd the of So, the where is. that's market

Justin Long

appreciate Okay, the I'll at leave that. time. I it

Operator

you. Thank

with Company. from question comes and O’Hara Sidoti Our next Steve

Steve O’Hara

Hi. Good morning. Thanks for taking question. the

know the – first redeemed on? second being in on and Or can expect bond in talk the I the about Is cash how right debt that mean, other sheet quarter I corresponding guys increased have curious, it deploy there is the significantly. obviously the now? Just that you are you but that expect you deploy deploy? you’d Or something to do expect things worked to you maybe or to balance

Brian Kenney

a a Yes. cash already but come it’s those specifically be reached $XXX this we we’ve we the where on talking have of of the of placing about of aircraft kind is talked first noting a release, has investment this the opportunities. end a did quarter our for Steve, of at as think in couple non-supply worth while, that But so balance about We million, and in can attractive press down been then environment the the some big the investment engines agreement bit. we cars. agreements about there

rates As you lease of we were very favourable. wanted to the exceptionally advantage have low know, take capital the markets been we In February, seeing.

notes off used debt. with we redeemed So, will X.X%. to On notes already and We market went million $XXX April X, in have June. of $XXX that coupon of of a pay a of were X.X% the the million those XX-year two-trench higher proceeds to from million at of coupon issuances issuance. due X.XX% or of be with we issued notes ten-year Much $XXX

also prepayable provide a X.XXX% that in June We due on X. become of million we retail will redeem $XXX when notice XXXX they notes

April, early prepaid in we million bank outstanding nearly addition, $XXX term In loans. of

we’ll debt plan debt raise year. maturing investment in given November, the So $XXX another in million value additional and of likely our later

So, redemptions the of to is opportunity, in some up. it really addition noteworthy investment those coming

Steve O’Hara

like then that That’s don’t agreement kind to tell, cars. – maybe but you of explain you Okay. there’s bit? little I regularly. you’d that from something do new I about a know Thank – just press me the something guys the Can in non-supply And release can pretty mentioned you. if just what it’s

Brian Kenney

Yes.

course. ways has existing acquiring add cars deal best those leases there’s that builder usually to this One is that during and So, attached. we place three through simply good one a supply get then award business and fleets do new quotes cars, normal is then from the the customer the second and through those out the builders with go where agreement, to been different the that we – spot And to fleet cars environment from with the and existing second one. get we

we comment on that So, non-energy investment. worth It’s are cars. the of some related those to noting all wanted

Steve O’Hara

Okay.

else portfolio at given there think And Or – kind – that for same of within gave that then then Is still still lease your what’s investment? management you the investment? last thoughts that increased guidance anything around the Is year the the are just the revenue of full that you in quarter maybe play? Okay. do direct investment. on is And kind with RRPF on the the portfolio direct now? management

Brian Kenney

Yes, Steve.

quarter So, last this more of expected do investment. type we noted we that to of

the in that additional management far revenue investment statements, related yes, to as engines. the those at guidance is And majority the see in So provided. we contemplated of that the financial yes, portfolio as least was segment you the that

Steve O’Hara

Thank you right. All Okay. much. very

Operator

Instructions] [Operator with from question you. Bergner G. Research. Our Thank Justin comes next

Justin Bergner

Good morning, Tom. Good morning, Brian.

just is engine questions First to for the on direct investment. question build the me about

$XXX of, and to we the intentions further XX your above that as current million? complete that $XXX capabilities and all was So, think sort of how level March about expand million should

Tom Ellman

Yes.

anything. and the invest first in last And attractive with in engine start all was mentioned But add Brian for has long-term completed million then was – types is he to as on first that $XXX leases. of I’ll most intention our let best we the the the quarter. quarter, customers So, if to

But difficult our to able to continue more look we’ll that business. So, to kind of much it’s predict intention exactly it’s of how do. certainly that for to be

Brian Kenney

Justin. Yes,

long-term on equipment are The leases. great really cost. in investing We’re engines attractive at

the lease that service GATX. conservative of strongest There’s just the is rates this You in airline great component the world. is are to have credits hook package roles. residual. total This for care And business the attractive. And

parameters. So, we’ll relaxing investment much we try to as those do can as without

Justin Bergner

the later This accretive lock you’ll improved that initially? up if will much you know, XX But I don’t unusual be question. an environment then these it. be are more lease intention Or a might mean, X not accretion? I to more answer the years can Okay. there’ll I’m have investments and sure is and

Tom Ellman

Yes.

So from as these attractive noted, incredibly accretive Brian perspective. year-one from are accounting also But they’re economically. an

Brian Kenney

point. great the always we’re point. way at whatever, a it’s That’s to whether engines, We at look railcars the That’s a optimize always best great look value.

good So question.

Justin Bergner

one in Okay. And the quarter, No quick just right? a repurchases here.

Tom Ellman

That’s correct.

Justin Bergner

there’s X going lot guess lastly with general a Canadian could and overbid a for rails of chain? and this I including how then clearly you the City mean the business Kansas And Kansas transaction supply activity of your morning Southern, the rails, railcar Southern with City what Okay. between for either Canadian Tier on do view, Nationals

Brian Kenney

exposure that, perspective, concerns our if to the result the start consolidation first of Justin. small. merger very there, can take is a approved, the I are that first level, as an fleet any equipment deal on deal, let’s Yes. From

and we less also directly. probably to KCS, than the have combined. of on cars to XXX CN, lease With CP less between them than them think XXX it’s I two

But create traffic kind rail that thing a bigger equipment demand GATX. a for potential not and new about one good as to asking diversified, less GATX. a the of material neutral but just you’re has and any car such going potential it’s I remain for is So, obviously here, exposure be also think, to picture merger new source

potentially but for which whether we’ll one goes and if have good actually car to see deal through, and wait what see goes it through, a we’ll that to demand. thing happens, So,

Justin Bergner

Okay. Thank you.

Operator

question with Thank Elkott comes Matt [Operator next from Our Instructions] you. Cowen.

Matt Elkott

benefit for if Good about markets, talk Thanks morning. bill? my an what question. what type cars infrastructure would Can type taking guys there’s you of of

Brian Kenney

Yes.

rail. billion been So, of earmarked bridges, think ports. is and bill There rail $XXX the passenger rail road, to I infrastructure all that going spending almost that’s north But that, trillion. $X systems, is is for that’s announced

It’s really roads, it’s rail more they that’s elsewhere. right? So, earmarked Amtrak. that’s great, bridges, anything it’s public transit, freight transportation. And for watching. be But really ports, sorely pay highways, it it’s needed, not that but for we’ll there’s how Appraising

Matt Elkott

Could But even expect frac Open some conversion there’s of would activity cars industrial sand. some any assume of the cement building potentially materials, or and that that sand to for the I to maybe Hoppers of demand happen? we

Brian Kenney

Yes.

it’s – not So will not Matt, form is bill obviously the be. the what it’s, and not finished passed, sure

speculative it’s individual and aggregates to related So, and steel certainly But spending. – the which there’s types. certainly, car feedstock’s building if to those think about, will infrastructure any you’re if would increased of benefit

to see have plays we’ll So, out. how it

Matt Elkott

Tom, the the XX% been, on on at number XX%? utilization, sense. time, a what I is it utilization crazy is full it’s last time. rail which Do it And as think Is by height question have month. I view makes one the just right of it’s, a crude best XX%, was is? XX%? mean, you of this is That think is industry The XX% I ever now

Tom Ellman

guess out. hone XX%. but is this in of mid-teens we A honestly It’s to quarter than might today have at of on a have lower a bit where is Matt, about to all at we’ve it about it talked good the hard play It’s what be exactly might guess we it end see little somewhere, the really certainly that Yes. to in before. be. the

Matt Elkott

And the last its gave and a to. underlying reminder in assumed the that on down assumptions grain guidance, you guidance actually Is your quick guys when expose intermodal recovery mainly then been has just you quarter? of what and rail

Tom Ellman

Yes.

in of improving lease So, rates. talked we’ve kind metrics about what been small quarters improvement lot first about hung talking just row question a the three it to or and tip, of idle industry spot a alluded there. the A is, in we’ve count car you seen of on loading in

in kind that. increase or We’re not right be and looks slow it’ll like at anything big like capacity a any now of seeing steady. least It

of the in The reason first expected. some COVID the range largely an throughout around we again, are that I that uncertainties the for But that’s year. happens things the noted degree nature we through what the will modeled of with recovery that the is the what continue So, as expectation proceeding course in provided. we of as quarter,

Matt Elkott

Tom. Got it. Thanks, Thanks, Brian.

Operator

you. Thank

from next Research. Justin Our G. Bergner with question comes

Justin Bergner

million, other small One be takes was income that leading about there I saw might and on the of about think morning, thanks cars. topic for for that Good you environment follow-up. a scrapped that category. I to don't the was in scrapping touched cars $X and although X,XXX some puts

are cars maybe comment on, So that scrapping is is depreciate, just you sheet? balance – still are than pace mainly maybe some of that value is the Are a that have sustainable? fully scrapping on that sort more cars you that residual

Brian Kenney

Yes.

life. from it scrap continuing proceeds. that expected to cost operate into its regardless scrap use a look When process the then is over terms compare What's in or that facility, the earn that when the what is remaining repair lease consistent car flows of of the comes repair, and cash cars rate the to prices. So, to likely at market scrapping of remaining a car we we

prices the when that have are naturally a cars, been you little the you what low-to-mid for low most higher, tilts scrap versus up, likely of scrap and is happens XXXs XXXX it to more most prices XXXs XXXX. makes of scrap bit So, for in

this that is to that, a So certainly, scrap into what likely the said that on and flow facility. it's important price making based ebb come Having number note that in scrap simply more car. repair quarter-to-quarter it we increase cars relatively can

Justin Bergner

Okay, understood.

the than now it's bit guess is understand I minor non-remarketing normal. perhaps a net to gains. item, a little guess In income, less terms of that minor line just which I

that gains residual or million, scrappage across gains probably value, And salvage the estimate which quarter. balance the sheet? I And the the cars whatever is salvage on be scrapped in it to so be is would value assume includes X,XXX it relative so would $X.X the you mostly that – which book

Brian Kenney

the how gain. correct. as That's number you the – Yes. calculate That’s that's primarily exactly and scrap indicate you is

Justin Bergner

any on dispositions when the gains America Okay. And asset outlook change then year? of there in your from North you the lastly, of your start gave has been to view at

Brian Kenney

hasn't. No, there

time, following can quarter-to-quarter. number from along that know, us vary you As

So, the more it full $XX we might year outlined of what expectation million we look the what last much that remains year higher $XX be than is over at year into our to and million the the course coming expectation.

Justin Bergner

follow-up. the for Thanks Okay.

Operator

Thank you.

with Steve Our comes Capital Barger from next KeyBanc question Markets.

Steve Barger

parts else, Good the morning guys. about with Related and any Thanks. issues on question you what inflation for steel, or components talk there you’re anything seeing can class steel for availability? input are

Brian Kenney

Yes.

we is on supply which the indicated cars supply as So, buy the the our and that of agreement. market through both spot majority agreements through

cost of delivery of kind challenges as steel the price increasing car with as is board, increased of the the schedule. far our the any certainly maintaining So, across

We’re receiving delivery of cars as expected.

Steve Barger

shops, availability issues? the in parts about What any repair

Brian Kenney

proceeding there We’re as expected well. as

Steve Barger

could the the any the asset how the else on inflation that Okay. in of And installed cars your terms that to buy down lease Does market means fleet what slow comes anything one, last spot comments on broader or just of rates. desire mind? for affect to value base,

Tom Ellman

in No. asset historically hard GATX general, front. is good I it’s our mean, owners for higher like been inflation

Steve Barger

Thanks. Understood.

Operator

Our comes Company. from O'Hara Sidoti next question with Steve &

Steve O'Hara

Hi, follow-up. thanks taking for the

obviously kind eventually it of wouldn’t or how up mean that think for push to mean, like you curious, versus that it? mean short tick but seems it I soon, like kind been term it, while. in seems quarter. a that keep necessarily, about I just about months I Just XX it you the a while. term renewal What’s long guys looking think think that mean, typically lasts, in fairly for you typical have it’s low terms – at the a where like of a I it typical been, how of I’m cycle it’s have would was

Brian Kenney

Yes.

what it number of see at cycle, And the historically increasing out the So, relatively you’ll that term that is the follow really and stronger in over has industry, five that extend up during short rates. followed the which you as we is to start increasing then the lease the to see utilization see is point first of bit. years and term one short-end last by you parts a

is the relatively the coming in continue rates. that short was our number slow the big how continues, indicated, it another improvement So, lengthens. and That that We’ll we we’d And cycle. as how far lease calling wouldn’t the continues expect years from recovery term see year into of steady the as just of expectation stays that that way to be of over eventually calling But expectation. see, historical change averages, of given to the I this our are a year. course length

Steve O'Hara

Okay. very much. you Thank

Operator

Thank you. have At questions. time, we this no further

So, I will it comments. our closing speakers turn for back to

Shari Hellerman

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

Operator

concludes gentlemen and today’s participation. that your you Ladies for presentation. Thank

now may disconnect. You