Greenbrier Companies Inc (GBX) 2003 Q2 法說會逐字稿

Hello and welcome to the Greenbrier Company Second Quarter of 2003 Earnings Release Conference.

Following today's presentation, we will conduct a question and answer session.

Until that time, all lines will be in a listen-only mode.

At the request of Greenbrier Companies, this conference call is being recorded for instant replay purposes.

At this time, I'd like to turn the conference call over to Mr. Mark Rittenbaum, Senior Vice President and Treasurer.

Sir, you may begin.

Good morning and welcome to Greenbrier's Fiscal 2003 Second Quarter Conference Call.

After we review our earnings release and make a few remarks about the quarter that just ended and the outlook for 2003 and beyond; we will open it up for your questions.

As always, matters discussed in this conference call include forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995.

Throughout our discussion today, we will describe some of the important factors that cause Greenbrier's actual results from 2003 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier.

Today we announced our Second Quarter Financial Results.

The company reported a loss of $0.8 million, 5 cents a share from continuing North American operations on revenues of $105 million.

This compared to a loss from continuing our operations of $3.2 million on revenues of $72 million in the second quarter of our prior fiscal year.

The principal reason for the increase in revenues and earnings over Q2 of the prior year with higher railcar deliveries and manufacturing margins in the current year and a $2.1 million pre-tax special charge taken in the prior year second quarter relating to down sizing of the North American operations.

In the first quarter this fiscal year, we reported near break even results on revenues of $97 million and the current quarter's earnings were down principally as a result of pretax costs of $3.2 million associated with certain temporary manufacturing inefficiencies and supplier related issues, which are now behind us.

Loss from discontinued European operations was down dramatically to $0.5 million compared to a $13.7 million loss in Q2 of the prior year, and a loss of $0.6 million in Q1 of '03.

The prior year's second quarter included a $14.8 million pretax special charge drafted impairment write downs from the $2.3 million special charge associated with reduction and size of the operations in Europe.

Our net loss for the quarter was $1.2 million or 9 cents a share.

The company anticipates return to profitability through the second half of the year, and the year as a whole as a result of higher production rates, improved margins and operating efficiencies.

For the first six months of this current fiscal year, the company has received orders in North America and Europe for 3,200 railcars valued at in excess of $200 million.

During the quarter we received orders for 1,500 of these cars with a value of about $90 million.

Our North American and European backlog continue to rise.

At the end of February we were at 5,800 railcars valued at $330 million, up from 5,700 cars and $310 million at the end of Q1.

Turning to manufacturing, revenues in North American operations were $87 million.

We delivered 1,200 cars the same as in Q1 of `03 and nearly doubled the 700 cars we delivered in Q2 of `02.

We anticipate North American deliveries in fiscal year `03, will be about 6,000 cars as we operate at higher production levels in the second half of the year and this is up from the 3,300 cars we delivered in `02.

Our margin for the quarter was 3.9% as compared to the first quarter.

Our margin was impacted by the production inefficiencies that I previously talked about.

These were in two areas, one is delay in our drop deck center partition car production at TrentonWorks and related line changeovers to another car type, as a result of patent litigation, and as well we had some supplier related issues at Gunderson which are now behind us.

So we expect our margins in the second half of the year to approach or exceed the margins realized in the first quarter of in excess of 6%.

Our leasing and services, marine manufacturing, industrial forge and rail services business continues to provide a stable revenue base and positive contributions to earnings and cash flow.

Our leasing revenues for the second quarter were $18 million.

We expect our leasing margins to be in the mid 30% range in `03.

Pretax income for the sale of leased assets was $300,000 for the quarter similar to Q2 of `02.

Our leased fleet consists of 13,000 owned units and 36,000 managed units and our leased fleet utilization was up slightly to 92%.

T&A expense for the quarter was up -- was $8.2 million, this is up $1.1 million from Q1 principally due to legal fees for the patent litigation and professional fees for other strategic initiatives.

G&A -- we expect G&A expense to continue at around $8 million for the quarter for the balance of the year.

The tax rate remains somewhat volatile principally due to non-US operations.

We expect the rate would -- be running as low to mid 40% range for the year.

We remain liquid with cash balances of nearly $60 million.

We anticipate pay downs of debt at term end subordinated debt of about 32 million for the year and to have virtually all of our 110 million line of credit available as we all expect modest uses of these lines.

Our net CapEx for the year is expected to run about 5 to 10 million that is gross CapEx minus sale of assets out of our lease portfolio and our depreciation for the quarter was $4.4 million and we expect it to run about 18 million for all of '03.

With that I'll turn it over to Bill and then we'll open it up for questions.

Thank you Mark.

Our first and second quarters as Mark has indicated Greenbrier has increased production rates dramatically over 2002 levels.

Production rates will continue to increase and stabilize in our second half.

Our backlog remained strong despite increased levels of production but equally important, forward visibility has improved and good business prospects well into the second half of our fiscal 2004 and that is true both in North America and in Europe.

Industry order levels and prospects also continue to improve with strengthening in basic commodities including steel and forced products as well as double-digit growth in container loadings, which drives our intermodal brand.

Intermodal brand is a very important driver of course of demand for our double stack cars, which are a very major component of our production -- for plans for the next year.

A concern at this point in our industry has become the underlying strength of the railroad supply industry itself in such basic areas as truck castings, boxcar doors, and other components, wheels, axles, and other railcar specialties.

During the quarter the company experienced certain manufacturing inefficiencies related to specialties, which has financially weakened suppliers' produced a less reliable supply chain.

This caused production disruption and higher production costs particularly on one line at our Gunderson facility in Portland.

Accounting adjustments were certain of these new car jobs were made during the second quarter and we believe we've fundamentally addressed the supply issues that were troubling us and we've made a full reserve for the start and stop at Trenton of the drop deck center beam line as well as provisions for consolidation of additional sales offices.

And in fact in the second quarter we went through and combed the areas where we were having any concerns about operating efficiencies and structural reserves but not special charges.

These charges, which were operational in nature, amounted to $3.2 million during the quarter, setting the stage for improved financial performance throughout the balance of the fiscal year and into the next year.

We continue to be concerned about the financial health of the railroad supply industry.

We continue to pursue methods to improve stability, especially in the railcar truck castings segment of the railroad supply industry.

In addition, Greenbrier intends to pursue an industry forum for car builders, and the railroad, and other customers, to be more proactive in stabilizing important specialty sectors of the supply business.

As it had been noted in the earlier press release, we were gratified by the support of CP Rail, in its order for drop deck center partition cars, now rescheduled at Trenton into next year, pending conclusion of - - at litigation.

During our second quarter, CP Rail placed an order for purchase of 600 conventional center partition cars, to provide additional capacity for their needs in 2003, while they wait for the drop deck order.

This was an extraordinary display of confidence and its made a friend forever of our workforce in the communities where we operate in Nova Scotia.

In Europe, Greenbrier continues to improve its backlog in operating performance, and operations have become cash positive, as Mark indicated, Europe will be profitable in the second half and it will pay down debt.

And we're confident we will conclude our recapitalization plans for Europe this year.

This will add significant external capital to Europe's balance sheet, pay down additional debt and reduce interest expense.

We deeply appreciate the hard work of our European management team and factory employees as well as the support of our major customers in Europe, as we improve this operations balance sheet and transfer decision making to our European team to manage European investments on a more local basis.

During the quarter continued strong performance was turned in by Greenbrier's businesses unrelated to new railcar manufacturing.

These businesses include railcar leasing, rail services, and marine construction with combined revenues of $170 million annually.

These businesses have been a major contributor to EBITDA during the recent industry downturn.

They will benefit from improved market conditions as the railroad industry continues with its economic recovery.

Greenbrier, as Mark as also indicated, continues to be in a strong liquid position with cash balances unchanged at $60 million or the same level at year in 2002.

Despite pay down of $15 million of debt and increased working capital needs due to the ramp up of production and related inventory and receivables.

While we will improve cash flow significantly in the second half of this fiscal year we will seek profitable investments of this cash and some of our existing liquidity during the remaining part of our fiscal year.

Such investments are targeted for our leasing portfolio and other assets, potentially strategic investments and will improve bottom line performance.

The company has considerable cash and borrowing capability to pursue strategic opportunities while preserving sufficient liquidity as a buffer against potential economic uncertainties.

Return it to you Mark.

Operator with that we will now open it up for questions please.

Thank you.

At this time we are ready to begin the question and answer session.

If anybody would like to ask a question please press star one on your touch-tone phone and I will announce you prior to asking your question.

To withdraw your question please press star two.

Once again, if anybody would like to ask a question please press star one now.

Sir I'm showing no questions at this time.

I have a question.

What is inefficiencies due to time change over.

Was that daylight saving time?

That was. [laughter] [Inaudible] - New Year's - rhymes with line change over.

Alright, operator thank you.

I would have thought John [Rodgers] [ph] would have asked that question.

-- he's much too polite.

Thank you for your participation in today's call and if there is not any questions we'll close it at this time.

And if any one else has a question off line they can feel free to call back in.

Thank you.

Thank you, sir.

That concludes today's conference call, you may disconnect at this time.