I hear that Train a coming

Greenbrier (GBX)

 In Millions except for EPS
GBX            Q113     Q213   Q313    Q413     Q114    Q214     Q314    Q414     Q115    Q215    Q315
Revenue        $415.4   $423.2 $433.7  $484.2   $490.4  $502.2   $593.3  $618.1   $495.1  $630.1  $714.6
Income         $10.4    $13.8  ($56.0) $20.7    $15.4   $15.6    $33.6   $47.4    $32.8   $50.4   $42.8
EPS            $.35     $.45   ($2.10) $.64     $.49    $.50     $1.03   $1.43    $1.01   $1.57   $1.33
EPS YOY                 $1.67  ($1.04)($.66)   ($.52)  ($.47)    $2.66   $3.45    $3.97   $5.04   $5.34

1ypeg of .08

GBX missed their earnings the last quarter by 8%. The Analyst’s were modeling for $1.63 and earnings came in at $1.49. GBX is growing their ROIC and also their market share. Both of these together prove that the company is gaining on their competition. GBX is targeting a Gross Margin of 20% with a ROIC of 25% by the end of 2016. With the strong dollar and the new regulations at their back we should see increased earnings. Also with the Syndication of their railcars this allows them to re-coup higher margins. GBX has hundreds of millions of dollars of cash flow in their backlog and they are being given a single-digit multiple. While they are trying to make their business less cyclical, this is something that needs to be watched, but they are in the early innings of the cycle. They are looking for acquisitions but only if it has the correct profile and price. It must be immediately accretive, a company that is in good shape, and a ROIC of 25% or higher. The management seems to be highly disciplined. This could be a great investment for a number of years so I am climbing aboard for the long haul.


Bill Furman- Chairman and Chief Executive Officer
Lorie Tekorius- SVP and Treasurer
Mark Rittenbaum- Chief Financial Officer

Who are they?

They are one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America and Europe, a manufacturer and marketer of marine barges in North America, and a leading provider of wheel services, parts, leasing and other services to the railroad and related transportation industries in North America. In addition, GBX provides railcar repair, refurbishment and retrofitting services in North America through a joint venture partnership with Watco companies.

Business Units

Railcar and Barges. Railcar backlog $4.78 billion, Marine backlog $80 million.

Wheel and parts reconditioning. GBW 50/50 partnership between Greenbriar and Watco.

Leasing and services:
Asset light model, Owned fleet 8,300 units, Managed fleet 241,000.

Investing Thesis

• Robust rail cycle driven by current business and industry trends.
• Broadening product demand across cycles.
• Aging fleet (approaching substantial tank car maintenance)
• Changing tank car regulatory environment.
All new HHFT cars built after October 1, 2015 are required to meet new DOT-117 specification (below), while older cars are required to meet DOT-117R (Retrofit) specification (same as DOT117P except 7/16” tank shell permitted) on a prescribed 2-10 year schedule.


In the 2014 Annual report, September 30th 2014, GBX had 1/3 of the backlog in the industry at just over $4 billion dollars. In the previous upgrade, at this time they only had 15% of the industry back log. Importantly, only about a third of their backlog was in tank cars. The remaining railcar backlog is well-diversified and includes railcars used for transporting a range of freight including: automobiles, intermodal containers, forest products, sand, plastic pellets, grain and others. Greenbrier is gaining market share. North American Railcar Backlog comparison. They have gone from 14% in 2007 to 30% in 2015. Taking market share from TRN, ARI and Rail. A new car costs 160 thousand to 180 thousand. They can build 6,000 to 8,000 rail cars per year. From August 10TH to Feb. 15th the backlog went from 5,300 units to 46,000 units.

GBX also has a marine barge manufacturing business and they recently launched the Kirby barge. Revenue for the marine barge business was $20 Million for the quarter.

Aftermarkets Wheel and parts reconditioning.

Their Wheels, Repair & Parts segment underwent a dramatic transformation in 2014. In July they announced the creation of GBW Railcar Services, a new company formed in a 50/50 joint venture with railroad industry pioneers, Watco Companies. This combination of Greenbrier’s and Watco’s respective railcar repair, refurbishment and maintenance businesses establishes North America’s largest independent railcar repair network. GBW creates a world class tank car and general freight car repair system with 38 shops in the US and Canada, including 14 tank car repair shops ready to meet regulatory and market-driven demand for tank car recertification’s, repairs and retrofits. GBW’s reach provides, for the first time, a one-stop shop network to contract for large customers’ full service repair and maintenance needs, and deliver more responsive service with the goal of reducing dwell time.
Our wheels and parts businesses continue to operate at 13 locations across the United States. They are a key contributor to Greenbrier’s comprehensive, lifetime railcar solutions for owners of rolling stock assets. Greenbrier’s performance in this segment is improving under the leadership of a new management team that took the reins in mid-2013.

10 year time frame for retrofit, 154,500 trains that need to be retrofitted. The retrofit costs $60-$80 thousand per car. The business arm GBW can retrofit 2000 to 3000 cars per year.

The Tank Car of the Future, Greenbrier’s latest tank car design, is up to eight times safer than tank cars currently in service when measured by the likelihood of a release of hazardous products from tank cars in a derailment. They have been active before US and Canadian regulatory bodies, which mandated this design as the new standard for transporting many types of hazardous materials.

Safety enhancements of Dot Specifications 117 tank car. (The new standard for cars)
Full height ½ inch thick head shield
Tank shell thickness 9/16 inch minimum tc-128 Grade B normalized steel
Thermal protection
Minimum 11 gauge jacket
Top fitting protections
Enhanced bottom outlet handle design.
(Greenbrier investor presentation May 2015)

Leasing and Services

Leasing and service demand are going up. In 2005 this made up 44% of their business and today this makes up 57%.

They have two ways to sell Railcars.

Direct Sales

Customer orders railcar to buy and use, they build railcar and deliver it to customer. The revenue is then recognized in Manufacturing.

Lease Syndication

The customer orders railcar to lease, and then GBX builds railcar and leases it. The Railcars held temporarily on balance sheet generating interim lease income for GBX.

•Called “Railcars held for syndication” on Balance Sheet
•“Interim” lease income recognized in Leasing & Services segment
Railcars aggregated and sold (“syndicated”) to multiple third party investors (non-recourse to GBX)
•Sales price premium over direct sale from attached lease
•Revenue from sale recognized in Manufacturing segment
Long term Management fees earned from investors on railcars after syndication
•Revenue recognized in Leasing & Services segment

Lease Syndication Model
Targeting ~$800 million of Syndication volume in FY 2015

One of two channels to market
Dwell time of rent producing railcars on balance sheet (“Railcars held for Syndication”) averages 3 months, as railcar leases are aggregated and sold in bundles to investors

In addition to premium pricing above direct sales, creates stream of multi-year management fee income
Expands customer universe beyond Greenbrier’s traditional base.

**Fleet Information Units**
                                                                   Feb. 28    May 31     Aug. 31    Nov. 30     Feb. 28
                                                                   2014       2014       2014       2014        2015
Long term owned units (“Equipment on operating lease”)             7,300      6900       6800       6006        6,400
Short term owned units (“Railcars held for syndication”)           1,100      1,400      1,800      1,900       1,900
Total owned fleet                                                  8,400      8,300      8,600      8,500       8,300
Managed fleet (units)                                              233,000    235,000    238,000    238,000     241,000


GBX customers include railroads, leasing companies, financial institutions, shippers, carriers and transportation companies. We have strong, long-term relationships with many of our customers. We believe that our customers’ preference for high quality products, our technological leadership in developing innovative products and competitive pricing of our railcars have helped us maintain our long-standing relationships with our customers.

In 2014, revenue from two customers, CIT Company (CIT) and TTX Company (TTX), accounted for approximately 41% of total revenue, 21% of Wheels, Repair & Parts revenue and 49% of manufacturing revenue. No other customers accounted for greater than 10% of total revenue.

In 2014, the top ten suppliers for all inventory purchases accounted for approximately 45% of total purchases. Amsted Rail Company, Inc. accounted for 19% of total inventory purchases in 2014. No other suppliers accounted for more than 10% of total inventory purchases. The Company believes it maintains good relationships with its suppliers.


They are subject to national, state and local environmental laws and regulations concerning, among other matters, air emissions, wastewater discharge, solid and hazardous waste disposal and employee health and safety. Prior to acquiring facilities, they usually conduct investigations to evaluate the environmental condition of subject properties and may negotiate contractual terms for allocation of environmental exposure arising from prior uses. They operate their facilities in a manner designed to maintain compliance with applicable environmental laws and regulations. Environmental studies have been conducted on certain of their owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary.

Our Portland, Oregon manufacturing facility is located adjacent to the Willamette River. They have entered into a Voluntary Clean-up Agreement with the Oregon Department of Environmental Quality (“DEQ”) in which they agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. They are also conducting groundwater remediation relating to a historical spill on the property that preceded their ownership.

The Latest quarter

Q3 2015 July 1, 2015

GBX had a strong market share in the first three months of the year as reported by ARCI, and they had 43% of all orders received during the first calendar quarter. Their market share has doubled over that in past cycles. They are trying to smooth out the cyclical part of their business by going into different segments. They have started a marine barge business and they are leasing out rail cars, then selling them and managing the sold cars. Also they have ramped up their business on refurbishing railcars.

This quarter the DOT and Transport Canada decided to adopt Greenbrier’s recommendation for the new railcar. Making their railcar’s the gold standard for transportation of hazardous and flammable commodities by rail. This should boost the Aftermarkets part of their business over the coming years.

The CEO Bill Furman stated that he was he wasn’t sure why analysts have singled them out for exposure in the energy field when they have less exposure then all of their peers. Most of GBX’s products are built in Mexico where they pay in peso’s and then are sold in U.S dollars. This is very helpful to them when the U.S. dollars are so strong.

They achieved their gross margin target of 20 % in the third quarter (20.9%) a full year ahead of plan. They also remain on track of reaching ROIC of 25% by the second half of 2016. Roic was 21.3%, annualized, in the third quarter. The management team has targeted a goal of 25% ROIC and 20% gross margins by the second half of 2016. Their guidance for the year is $5.70 to $5.85, which has been refined from the last quarter of $5.65 to $5.95 earnings per share.

They missed earnings this quarter, by 8% , which was due to a lower actual syndication in the quarter, which was diverted to the following 4th quarter. Sequentially, their earnings were down 18% but YoY , earnings were up 29%. Revenue was up 20% and TTM earnings were up 101 %. Analyst are modeling earnings of $1.73 for the next quarter giving them TTM earnings of $5.64, which will be growth of 63% YoY. They also were in talks to acquire a company this quarter but could not close the deal. The company would have helped them with their ROIC target but the details they were looking for (Price ?) could not be met.

GBX expects a tailwind from the new regulations on retrofitting and adding new cars. They expect this to continue into 2016, 2017 and 2018.




The railroad industry had a great run shipping coal then fracked oil. Coal is all but dead, no new plants will be built and older plants converting to cheap natgas. The frack boom is (temporarily) dead thanks to very low oil and NG prices, might get worse if Iran starts pumping.

Yes, they have a big backlog, but that can be decommitted and if the backlog does not replenish, those looking at future earnings will decide to sell.

Just sayin’


Thanks for your thoughts.
The railroad industry had a great run shipping coal then fracked oil. Coal is all but dead, no new plants will be built and older plants converting to cheap natgas. The frack boom is (temporarily) dead thanks to very low oil and NG prices, might get worse if Iran starts pumping.

Your right that coal is pretty much dead but GBX actually stated that they have less exposure to Oil then their competitors. While fracking is down they are using more sand to frack now then ever before. It is cheaper to use sand and the oil companies are finding out that it is almost as good as any other product.

Yes, they have a big backlog, but that can be decommitted and if the backlog does not replenish, those looking at future earnings will decide to sell.

The Management of GBX was very specific on the conference call about this. The Analyst’s have been asking them about this the last 3 quarters. One of their customers did ask to be let out of a contract and GBX told them they could not be let out of the contract but they would work with them. The way I understood it is that they were going to move their contract to a later date. That is the only customer that has asked for this so far. GBX stated on the conference call that these were binding contracts and that no one could back out of them. GE tried to back out of a contract a few years back and GBX took them to court and won. So I don’t think that anyone is going to back out of the contracts. Also the railroad companies are being mandated to upgrade their railcars. This is going to provide a tail wind for the company, and this last year the backlog has been growing not falling.



Andy-I have been looking at TRN and recently at GBX. The PE, EPS, and revenue are a compelling story. I am concerned about the backlog. Based on my research demand is going to drop a bit through 2019. I expect this to reduce the number of orders which will reduce the backlog. The share price seems to live and die by the backlog



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