GREENBRIER COMPANIES INC Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• • Greenbrier's positive momentum in Q4 with second highest quarterly EBITDA of $159 million and aggregate gross margin of 18.2% in Q4, 310 basis points sequential growth; full year aggregate gross margin 15.8%, 460 basis points higher than fiscal 2023.
• • Advancing the Better Together strategy focusing on maintaining manufacturing leadership, improving manufacturing gross margins, and doubling leasing recurring revenue.
• • Operating efficiencies improving, with recurring revenue from leasing up 25% since expanding the lease fleet, on track to double in 4 years; nearing return on invested capital target ahead of schedule.
• • Commemorated 30th anniversary as public company by ringing NYSE bell.
• • Brian Comstock discussed leasing team growing fleet by 300 units in Q4, fleet utilization ~99%; renewed non-recourse warehouse debt facility.
• • Greenbrier secured orders of 4,400 units worth $575 million in Q4, backlog $3.4 billion; focus on railcar restoration activities accretive to earnings.
• • International backlog healthy, Brazil seeing increased demand; Q4 Manufacturing gross margin 14.8%, highest in over six years.

Segment Performance:

• Leasing & Management Services: Recurring revenue from leasing activities increased by 25% since expanding the lease fleet, on track to double in the next four years.
• Manufacturing: Q4 EBITDA was $159 million, aggregate gross margin in Q4 was 18.2% (310 basis points sequential growth), full year aggregate gross margin 15.8% (460 basis points higher than fiscal 2023). Q4 Manufacturing gross margin rose to 14.8%. Backlog was $3.4 billion with 26,700 units.
• Maintenance Services: Achieved solid quarter with year-over-year gross margin increase due to efficiencies in car flow, cycle times, and employee retention.

Guidance:

• • Fiscal 2025 new railcar deliveries expected to be 22,500 to 25,000 units, including ~1,600 from Greenbrier Maxion Brazil.
• • Revenue projected between $3.35 billion to $3.65 billion.
• • Aggregate gross margin expected to increase 20 to 70 basis points to 16% to 16.5% from 15.8% in fiscal 2024.
• • Operating margin expected to be 9.2% to 9.7%.
• • Capital expenditures: $110 million in Manufacturing, $10 million in Maintenance Services; gross investment in Leasing & Management Services ~$395 million, including capital expenditures and transfers of railcars.
• • Proceeds of equipment sales expected to be around $90 million.

Risks:

• • Factors that could cause actual results in 2025 and beyond to differ materially from forward-looking statements, as mentioned in the call regarding market cyclicality and other operational factors.

Q: Looking into next year, there had been some concern that the North American cycle could be a little more tepid near-term just based on industry orders. I mean, you’re guiding to roughly flattish deliveries year-over-year. Can you bridge us through your different markets and maybe give us some color on your backlog coverage and where there’s opportunity and risk to any of your different regions here?

A: Yeah. Thanks, Bascome. It’s Brian. I can give you a little bit of color on the backlog and the bridge. So as you know, one of the products that’s really been hot has been the automotive market. And while automotive has been hot, boxcars and some other products have slowed. We’re seeing a mixed shift in the back half of the year and we’ve secured quite a bit of that backlog to-date. So that’s really what’s providing us with the confidence in the guidance that we’re providing here today.

Q: And piecing it all together, it does seem like with the margin improvement, there is an opportunity to, put EPS in the close to $5 range if you bridge this all together. Is that roughly where you’re getting at or are there some other items maybe below the line that we should think about to get from what you’ve guided officially to EPS?

A: Bascome, this is Lorie. I think you’re spot on. We came very close in 2024 to being, we’re just shy of $5. And I can tell you that the way that this team is operating and executing, I have no doubt that we will continue to show improvements as we work through 2024, I mean 2025.

Q: And last piece, it seems that the market in North America, at least, has moved away from the long-term speculative order from leasing companies. Do you think that’s a permanent change or reflective of some other issues and could we see some of that come back in 2025?

A: Bascome, that is a great question, and quite frankly, it’s been one that has benefited Greenbrier and other builders over the past few years because the operating lessor community has by and large been on the sidelines with the exception of a few. It has contributed to our strong lease origination capabilities and one of the reasons why we really covet that side of our business. Whether or not it’s a long-term shift, this has been going on now for probably four years, five years, where operating lessors have been on the sidelines. Started during COVID, then as interest rates became very volatile, I think it was a cost of capital issue or it was very difficult to match it up in time. I’m not sure. But one thing that has shown itself is that, there’s enough activity between the builders and some of the operating lessors to take care of the market. So whether they come back in or not, it would probably boost multiyear new car deals potentially. But on the other hand, it tends to potentially erode leasing economics because you have more product in the hands of others. So, hopefully that helps you a little bit. Lorie Tekorius: And I would just add in that I think what we’ve seen over the last few years is just a lot more disciplined behavior… Brian Comstock: Yeah. Lorie Tekorius: … in the North American market and I think that that’s voting worked very well for everyone. And while we haven’t seen the operating lessors make big, large, speculative orders, they have been very active, whether it’s on the new car side and in the secondary market. So I think the overall market is quite active. It’s just being very disciplined.