GATX Corp. Reports Operating Results (10-Q)
Gatx Corp. has a market cap of $1.56 billion; its shares were traded at around $33.65 with a P/E ratio of 21.1 and P/S ratio of 1.3. The dividend yield of Gatx Corp. stocks is 3.3%.GMT is in the portfolios of David Dreman of Dreman Value Management, Chuck Royce of Royce& Associates.
Highlight of Business Operations: Net income was $18.7 million or $0.40 per diluted share for the first three months of 2010 compared to net income of $27.6 million or $0.56 per diluted share for the first three months of 2009. The 2010 and 2009 results included after tax unrealized losses of $0.8 million or $0.02 per diluted share and $11.6 million or $0.23 per diluted share, respectively, related to certain interest rate swaps at GATXs European Rail affiliate AAE Cargo A.G. (AAE).
Current economic conditions continue to negatively affect Rails financial performance; however, markets in North America appear to have stabilized, although at relatively lower levels. Active cars on lease declined by approximately 1,700 cars in the current quarter compared to the end of 2009, primarily due to the sale of approximately 1,300 active cars during the quarter. Utilization remained relatively flat at 96.0% compared to 95.9% at the end of 2009 and 96.5% at March 31, 2009. Lease rates on renewals and assignments during the quarter were generally lower than the expiring rates. The average lease renewal rate on cars in the GATX Lease Price Index (LPI) (see definition below) decreased 15.2% from the average expiring lease rate in the current quarter, compared to decreases of 18.7% for the fourth quarter of 2009 and 5.5% for the first quarter of 2009. Rail entered 2010 with approximately 17,200 cars on leases scheduled to expire during the year, of which approximately 4,300 occurred in the current quarter. Rails commercial team has effectively deployed railcars despite significant idle railcar capacity in the industry; however, renewing leases at rates below expiring rates is expected to continue to have a negative effect on lease income in the near term. Lease terms on renewals for cars in the LPI averaged 31 months in the current quarter, compared to 43 months for the fourth quarter of 2009 and 45 months in the first quarter of 2009. The downward trend in the duration of renewals is due, in part, to Rails efforts to shorten term in anticipation of an eventual market recovery. In Europe, Rails wholly-owned tank car fleet has been less volatile due to its concentration in the more stable petroleum market. Fleet utilization decreased modestly to 94.4% from 94.7% at the end of 2009. AAE, which serves the freight railcar markets, continued to experience pressure on lease rates and fleet utilization. During the first three months of 2010, Rails investment volume was $48.1 million, compared to $70.5 million in 2009.
Rails segment profit for the first three months of 2010 and 2009 reflects unrealized losses of $0.9 million and $14.3 million, respectively, representing the change in the fair value of certain interest rate swaps at AAE. Excluding the unrealized losses, Rails segment profit decreased $7.3 million, primarily due to asset impairment charges and higher maintenance costs in Europe, partially offset by higher share of affiliates earnings.
Lease income from railcars in North America decreased $15.0 million, primarily due to an average of approximately 4,200 fewer cars on lease resulting from lease end returns and car sales. In Europe, a $3.5 million increase in lease income was driven by the favorable foreign exchange effects of a weaker U.S. Dollar and moderately higher lease rates. Asset remarketing income increased $7.8 million due to higher railcar sales in the current year. Other income was $6.1 million higher, primarily due to income from an end-of-lease settlement and higher scrapping gains. Share of affiliates earnings was higher, primarily due to a $13.4 million decrease in unrealized losses on interest rate swaps at AAE. Excluding the unrealized losses, share of affiliates earnings was $4.1 million higher primarily due to an affiliate asset remarketing gain.
In North America, maintenance costs decreased $1.0 million, largely due to lower spending on wheelset repairs, partially offset by higher repair volumes and regulatory compliance costs. In Europe, maintenance costs were $7.2 million higher primarily due to higher material costs for wheelset replacements, higher repair volumes and the unfavorable foreign exchange effects of a weaker U.S. Dollar.
Specialtys total asset base, including off balance sheet assets, was $694.6 million at March 31, 2010, compared to $676.9 million at December 31, 2009, and $639.8 million at March 31, 2009. Investment volume was $19.6 million in the first quarter compared to $4.2 million in the prior year period. Specialtys Rolls Royce joint venture continues to produce positive operating results in addition to remarketing income. However, the markets in which Specialtys marine joint ventures operate remain under pressure.
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