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Greenbrier: Creating a Better Investment Opportunity
Posted by: abirk (IP Logged)
Date: March 4, 2014 11:00AM

Transportation of goods plays a pivotal role in the prosperity of an economy. Railroads, being an old industry, contribute a lot in this economy. Transportation of coal, petroleum, petroleum products and many other industrial goods are mainly transported through railroads. Now, if we compare a railroad to a car, then we can say that the supplier of transportation equipment is like oil for this car. Both railroads and suppliers of transportation equipment play a promising role in this economy as they depend on each other.

Greenbrier Companies Inc. (GBX), formerly Greenbrier Oregon Inc., is a leading supplier of transportation equipment and services to the railroad industry. Headquartered in Lake Oswego, Ore., this company builds new railroad freight cars in its four manufacturing facilities in the U.S. and Mexico, and marine barges at its U.S. facility. It also repairs and refurbishes freight cars, and provides wheels and railcar parts at 37 locations across North America. Greenbrier builds new railroad freight cars and refurbishes freight cars for the European market through both its operations in Poland and various subcontractor facilities throughout Europe. The company operates in three primary business segments: Manufacturing; Wheels, Repair and Parts; and Leasing and Services. It owns approximately 8,600 railcars and performs management services for approximately 224,000 railcars.

Tracking the Performance

On Jan. 8, 2014, this leading manufacturer of railroad freight cars reported strong first quarter 2014 results. Net earnings for the quarter were $16.0 million, or $0.51 per diluted share, excluding restructuring charges (net of tax) of $0.6 million, on revenue of $490.4 million. Net earnings attributable to Greenbrier for the quarter, which include restructuring charges, were $15.4 million, or $0.49 per diluted share. Adjusted EBITDA for the quarter was $50.0 million, or 10.2% of revenue. Further, the company has improved its gross margin for the quarter to 12.6%, which is more than halfway to fourth quarter 2014. It has also met its $100 million minimum capital efficiency goal which was originally scheduled to be met by February 2014. Since Feb. 28, 2013, Greenbrier’s net debt reduced by $90 million. A chart has been provided below to compare Greenbrier’s first quarter fiscal 2014 earnings with fourth quarter fiscal 13 earnings.

The company delivered 3,700 units of new railcar for the quarter, compared to 3,500 units for the quarter ended Aug. 31, 2013. Greenbrier also received orders for 2,500 new railcars valued at $230 million during the quarter. Subsequent to quarter end, Greenbrier received orders for another 1,100 units valued at approximately $130 million. Further, under a $50 million share repurchase program, the company has repurchased 110,400 shares of common stock at a cost of $3.4 million.

Positive Outlook

According to the American Association of Railroads, 85% of the 92,000 tank cars currently moving flammable liquids in the U.S. should be phased out or upgraded. For this reason, Greenbrier and other players in this industry such as Trinity Industries Inc. (TRN) and American Railcar Industries Inc. (ARII) will improve their sales in a large scale. Greenbrier is ahead of its peers because on March 3, 2014, the company has received new orders in the second fiscal quarter ended Feb. 28, 2014, for 5,600 railcar units valued at approximately $460 million. This made Greenbrier to touch a nearly eight-year high. The main reason for this order is that on Feb. 5, 2014, the company has announced that it will design a new generation "Tank Car of the Future" for rail transport of hazardous freight, including flammable crude oil and ethanol, that can better withstand the additional demands associated with operating unit trains.

Greenbrier’s segment outlook has been provided below.

Greenbrier provides its customers with a diverse range of equipment and financing alternatives designed to satisfy each customer’s unique needs, whether the customer is buying new equipment, refurbishing existing equipment or seeking to outsource the maintenance or management of equipment.

The key features of this leading manufacturer’s integrated model are provided below with the help of a chart.

Charts from company website

On a Concluding Note

Overall, rail fundamentals are solid. Greenbrier is confident that it is well-positioned to take advantage of a number of established and emerging opportunities, as well as to achieve its margin enhancement and capital liberation goals. It can be expected that the company will expand across all segments, and to realize operating leverage and growth in ROIC. The share repurchase program is another significant step to enhance shareholder value.

Greenbrier’s integrated business model delivers superior value to customers by creating customized freight car solutions over the entire life of a railcar. The company’s diversified portfolio of quality products and services enhances its financial performance across the business cycle, and entering into comprehensive management and maintenance solutions with customers is an area of increasing opportunity for the company. I am therefore pretty bullish that this leading manufacturer is an interesting investment opportunity.



Stocks Discussed: GBX, TRN, ARII,
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