Greenbrier Companies Inc (GBX) 2015 Q2 法說會逐字稿

Hello, and welcome to The Greenbrier Companies' second quarter of FY15 earnings conference call.

(Operator Instructions)

At the request of The Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Ms. Lorie Tekorius, Senior Vice President and Treasurer. Ms. Tekorius, you may begin.

Thank you, Mia. Good morning, everyone, and welcome to Greenbrier's second-quarter FY15 conference call. On today's call I'm joined by our Chairman and CEO, Bill Furman, and CFO, Mark Rittenbaum. We'll discuss our results for the quarter ended February 28, 2015 and comment on our outlook for the second half of 2015. After that, we will open the call up for questions.

In addition to the press release issued this morning, which includes supplemental data, more financial information and key metrics can be found in our earnings deck posted on the IR section of our website. Hopefully, you can all find that.

As always matters discussed on this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Through out our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2015 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier.

Highlights for the quarter include record revenue, EBITDA and earnings. We also delivered more railcars than in any prior quarter, up 400 units or 8% compared to our previous high. Diversified orders totaled 10,100 new railcars valued at $1.09 billion during the period. Broad-based demand drove backlog to a robust 46,000 units valued at $4.78 billion, the highest in the Company's history and the sixth consecutive quarter of backlog growth. These backlog and orders figures exclude orders and awards for about 1,000 units received subsequent to quarter end.

This year, we've continued to demonstrate the strength of our diversified business model. Our strategies as diversifying our product mix, driving more volume through our lease indication model and expanding capacity and efficiencies through our low-cost footprint are translating into higher gross margins with second-quarter aggregate gross margin reaching a record 19.9% compared to 17.8% in the first quarter. As a reminder, while gross margins continue to increase, we do not expect their track to be perfectly linear.

In addition to executing on our three prong strategies, unlike many multi-national companies, the strengthening of the US dollar serves as a tailwind for Greenbrier. Most of our North American production occurs in Mexico, where our expenses like labor and facilities costs are in pesos, but all of our sales are in US dollars. As a result, the strengthening USD lowers our input cost and enhances margin.

In Europe, our translated profits are lower with the strengthening of the US dollar, but this is a minor headwind since less than 10% of our total deliveries are in Europe.

So net-net, the strengthening US dollar during the quarter served as a tailwind to our rules, net of taxes and non-controlling interest, of approximately $0.03 per share. We expect this tailwind to continue as the US dollar remains strong. In addition, this quarter we had a foreign exchange gain, net of tax and non-controlling interest, of $0.06 per share primarily driven by strengthening US dollar against the peso.

Our execution this quarter exceeded even our revised, upward expectations from last quarter. Given this positive momentum and visibility, we're updating our guidance as follows: Deliveries, in 2015, to be approximately 21,500 units. Revenue to approximate $2.6 billion to $2.7 billion, which excludes revenue from GBW, as it's accounted for under the equity method of accounting. Diluted EPS in the range of $5.65 to $5.95 per share. Adjusted EBITDA in the range of $420 million to $435 million.

As a reminder our gross margin growth will be non-linear. Greenbrier continues to stay on track, and we believe our integrated business model and flexibility in an ever-changing market will allow us to achieve our two financial goals, which are aggregate gross margin of at least 20% and ROIC of at least 25%, both by the second half of FY16.

Now, I'll turn it over to Bill.

Thank you, Lorie. Welcome to the call. We had another record quarter, continuing our strong pattern of growth, market leadership, forward visibility and scalability. Our diversified business model continues to build momentum. Our aggregate gross margin was nearly 20%, achieving a goal we set for ourselves for mid 2016, so almost a year earlier than planned. Similarly, ROIC reached almost 20%, tracking toward the target announced in February of 25% by next year.

As Lorie commented earlier, progress on these goals may not be linear but clear progress, definite progress is being made. Our integrated business model and its intended three strategies, one, driving more product through capital-like leasing, two, product diversification, and welcome three, lower cost, highly efficient manufacturing facilities, continued to drive Greenbrier's market share growth and scalability. We've almost doubled our market share from normalized periods at this point in the cycle.

We remain focused on our bench strength and diversification to bullet proof our balance sheet in the future. We believe our model is building sustainability for future financial performance as we drive on the key metric goals and include a high priority on safety, quality, and customer satisfaction.

Lower oil prices and a stronger US dollar are delivering added tailwinds to Greenbrier, making our facilities much more valuable in Mexico, where we currently employ almost 7,000 workers and staff. Investments in South America and Latin America will solidify our emerging America strategy, which we use this fixed base of operations in Mexico, and which, when coupled with growth in other international markets, will deliver more stability and sustainability longer term.

A long awaited decision, by the US government, on new tank car standards not only will mean a safer tank car for transported hazardous materials in North America, but improved standards will help protect the railroad franchise from disruption in the rail and energy Renaissance currently under way in North America. New and safer standards will also create longer term demand for retrofit and construction of new tank cars, carrying backlogs even farther out than present levels.

Greenbrier is fully committed to safer tank cars and is prepared to do its part at its partly owned subsidiary, 50/50 subsidiary with Watco in retrofits, but also with our state-of-the-art tank car facilities and our new tank car of the future, which we expect the US government will largely accept as the new design standard for new cars.

We will continue, at Greenbrier, to focus on ROIC goals and on increasing our bandwidth to sustain growth, with substantial free cash flow expected over the next few years. We intend to invest that free cash flow wisely. Further, we will continue our dividend policy and continue stock buybacks as we see good pricing points for Greenbrier stock, continuing our balanced use of cash flow as we have in the past year. At Greenbrier we firmly believe, at the Board and among our Management team, that this is not as good as it gets.

At Greenbrier, we continue to be dedicated to our customers and our employees. We're very proud, also, of the strategic customer relationships we've cultivated over the years, including selected strategic leasing company partners and new investors. Our leasing business has been highly successful and generates not only free working capital but long-term revenue streams through diversified asset management agreements and syndicated sales to our core customers and investors, as well as a wide array of attendant services for repair, parts and complex customer solutions, which allows us to reach value points throughout the life of a railcar.

Earlier this week, we announced the election of another Board member, Kelly Williams. We were pleased about Kelly's decision to join our Greenbrier Board. She has extensive experience as an investor and is financially sophisticated. We know she will assist us in increasing shareholder value.

At Greenbrier, our Board is dedicated to a strong future. We're proud of our employees and our customers who have been responsible for our growth and improved business outlook and model. We appreciate the support of our stockholders and of those of you who have loyally followed us for many years. You're surely a part of our inspiration and success to date.

Thank you, and back to you, Mark.

Thank you, Bill. I will spend a few minutes on our balance sheet, cash flow and liquidity, and then we'll open it up for questions. Greenbrier remains a very liquid Company. We ended February with $385 million of liquidity from cash balances and available borrowings on our revolving credit facilities. Our net debt to EBITDA is a modest 1.2 to 1. Our increase in net debt of $16 million during the quarter is due to previously announced robust CapEx programs for 2015 primarily related to our capacity projects in Mexico and increased vertical integration, increased working capital needs associated with higher production and lease syndication volumes, and a return of $32 million of capital to shareholders in the form of dividends and share repurchases. Year to date, we have returned $55 million of capital to shareholders in these two forms, that is dividends and share repurchases.

Looking ahead to the second half of 2015 and beyond, we believe working capital needs should stabilize. We have $55 million remaining of our previously stated $95 million manufacturing CapEx in the second half of 2015. For 2016 and beyond, we expect CapEx will be significantly less than 2015. As such, as Bill noted, we expect we will generate significant free cash flow in 2016 and beyond. Indeed, in the second half of 2015 we will generate free cash flow as well. We will continue to use this free cash flow to reinvest in high-rate-of-return projects in our core businesses, to seek acquisitions in our core competencies, and to continue to return capital to shareholders.

Finally, some investors have asked that we provide more color on our lease origination, syndication and asset management model and our leasing and services segment. As we had promised, we have provided additional information in our supplemental slides posted on our website, and we would be delighted to take any additional detailed questions about this segment off line after the call.

Operator, Mia, we will now turn it back to you and open it for questions, please.

(Operator Instructions)

Our first question is coming from the line of Mr. Justin Long of Stephens.

Thanks, and good morning and congratulations on the quarter.

Thank you, Justin.

Clearly, the expansion in manufacturing margins was a highlight in the quarter, up 340 basis points sequentially. You listed several drivers to that increase, but is there any way you could give us more color on how much of that sequential margin expansion came from each one of those different drivers you mentioned, or at least just rank them in order of magnitude?

Justin, it's Mark, and we would prefer not to rank them. As Lorie noted, it is a combination. As we've noted, it's a combination of it continued pricing strength, driving more volume through our lease syndication models, efficiencies and mix. Then, the last piece is we did have a tailwind from improving FX, but it really is a combination of all three of them. They've all contributed in a meaningful way.

The only thing I'd add is that the CapEx that we're putting in our facilities is intended to enhance efficiency and that's really contributing to these benefits. We're making very, very good progress, indeed, on building out and finishing all of the facilities.

Okay, great. To follow up on that question, Bill, you mentioned that you basically hit your long-term gross margin target a year early. I was curious, what's preventing you from taking that longer term guidance higher? Are there any margin headwinds we should be thinking about as we look into either next quarter or over the next year that would prevent margin expansion above what we saw in the second quarter?

Justin, I'm optimistic, but I have Lorie and Mark here to keep me under control. We've said also that progress on these goals is not necessarily linear or sequential. We don't know of any headwinds that are facing us, but we have exceeded expectations in terms of implementation of the facilities. We, knock on wood, haven't had any incidents, any major injuries or difficulties that might have been anticipated in some of these very complex projects. We haven't had that. I'm not sure if, Lorie, would you like to answer or would you like to add anything to that?

The only other thing that I would add is as we go into the second half of this fiscal year we will be switching over to more complicated tank cars, adding some lining facilities at some of our locations, so any time that we're doing some of those major kinds of shifts, we expect that there might be a little bit of headwind when it comes to efficiency. Now, again, our manufacturing group thus far this year has met those challenges and been above what we expected, but that might be a little bit of potential headwind.

Justin, at the end of the year -- so we, to your point of the 20% margin, why we haven't revised the goal, as Lorie and Bill have said, after one quarter we just didn't want to declare total victory and move. One, with the optimism that both Bill and Lorie have stated, at the end of the year, we will revisit our goals again and we will update them as appropriate at that time and at the same time we would look at our 2016 guidance.

Okay, fair enough. I'll ask one more and pass it along. Lorie, you talked about tank production and the potential ramp to some more complicated tank cars. I was wondering if you could just update us on the annualized rate of tank production that you experienced in the second quarter? Then, also provide an update on how you expect that to ramp over the remainder of the year?

Justin, that's a great question. Doing some quick math. Right now, I would say we're probably running about 20 a day on tank cars, so multiply that times 60 working days in the quarter, so that's the rate that we are looking at right now. Now again, we get into some of the more complicated tank cars, as we've noted in some of our backlog and order disclosures, we are taking orders for tank cars that are non-energy related. Some of the cars are more complicated and our rate will adjust potentially downward a little bit, but then come back up.

We also are just finishing one production line for tanks. We probably hadn't reached full efficiencies there, which would offset some of the caution that you've heard us express before. There are so many factors we don't control. I generally am fairly optimistic we'll continue to ramp efficiencies and production rates not withstanding some of the complexities that Lorie has mentioned.

Okay, great. I appreciate the time and congrats again on the quarter.

Thanks, Justin.

Thank you. Our next question is coming from the line of Mr. Matt Brooklier of Longbow Research.

Hey, thanks and good morning. I just had a question on regulations for flammable service tank cars in terms of where we think we are? I know that we're coming up upon the May 12 date and it was mentioned in the press release. What's the conviction level that we're going to have a new rule in place by some point in May?

We're all reading the same tea leaves. It appears that something will be out in the May timeframe or even a little earlier than expected in May or late this -- so, I think the things are pretty much set to get regulations, and we expect those to be forthcoming soon.

Okay. Then, can we also get an update in terms of GBW in terms of where we are in that process of getting that division ready for potential retrofit? Then, maybe remind us of the revenue and current margins and then maybe what the revenue and margins could look like on that business as we move out, given you're focused on A, improving the division, and then B, we're likely going to get some retrofit benefit here as well?

Since you're mentioning GBW and retrofits, let me just comment on, so I think it would be interesting for everyone to read the NTSB, the National Transportation Safety Board, recently released recommendations, which go a little bit more aggressively on the issue. We do expect car design standards to be very much same as the standards that we have in our tank car of the future. In other words, Option 2 under the DOT rule, they are still considering, we think, electronic brakes. We hope that they don't do that, but the whole issue is very important. It does have considerable momentum, and we believe that the safer tank car standards will be very important to protect the railroad franchise and to protect this energy Renaissance that's coming.

With respect to GBW, plans are about as on schedule as we had hoped. We spent the first six months really reorganizing, being prepared to operate its scale in that business. Jim Cowan, who reports to a Board of Directors, which includes two Greenbrier officers, Mark Rittenbaum being one. Rick Turner, who runs our parts and wheels business, being the other Director, and then Watco designees. Jim Cowan is doing an excellent job. He's a very experienced CEO, but integrating 38 different shops is not an easy task.

We do have a jump start on retrofits. We, and a number of other companies, will be well positioned to meet whatever time standards that the government sets for making the current fleet safer through retrofits and improvements of the tank cars hauling hazardous substances, including flammables.

Okay, appreciate the color.

Thank you.

Thank you. Our next question is coming from the line of Ms. Allison Poliniak of Wells Fargo.

Hi, thank you. Just going back to -- I have a quick question on, say we get the standards in May. How quickly could production happen on the new cars and potentially even retrofits? Is it a six-month timeframe or should we be thinking sooner than that?

Thank you for your question, Allison. Nice to hear from you. We're actually building the tank car of the future for energy customers now. We haven't disclosed the names of the customers, but we had earlier disclosed that we had received about 3,000 orders for that car. So, we're building that car now. There really isn't -- that's not the car that Lorie was referring to that might involve complexity. The car she was referring to would be more of a pressure-vessel type car, a specialty car, and that's fully baked into our manufacturing plans.

On the retrofit side, there's been a lot of concern or talk about how quickly the entire industry could gear up to do retrofits. There's over 100 shops in the United States alone that are certified for tank car service. We know that others besides ourselves have been investing in shops, particularly Trinity has invested assertively. We think that the American tank car shop network, setting aside but including supplemented by Canadian and other facilities in North America, can easily do a work that's required in any realistic timeframe between three and five years.

We see that as something that can be done. I think we've got a jump start on it. We're processing, finally, retrofits right now. We're doing retrofits with those customers who wanted to anticipate their needs and get in front of the wave and build a safer tank car now.

That's great. Then, on free cash flow, I know you talked about working capital stabilizing from here. Can you prioritize between organic investments, acquisitions, dividend share repurchase, how you're thinking about that today?

Mark?

In terms of -- well, I think we're thinking of them in a combination, Allison. As you've seen today, we are investing in CapEx projects that have high rates of return or expanding our capacity and more tank car capacity and more vertical integration. As we previously stated, after this year, we are done with our capacity expansions and build outs. So, while we'll continue to reinvest in a high rate of return CapEx projects, no more expansion projects. We expect those investments, therefore, to come down, overall, in our manufacturing segment.

Outside of that, we will continue to take a balanced approach in all three of these areas. As Bill stated, you can expect that we will continue with our share repurchase program and dividends. We'll also continue to look at opportunities to grow our business. We'll just look at high rate of return projects.

One reflection, just stepping back a second, Allison, you might look at our balance sheet. As Mark said, our balance sheet is really improved over the years, and our financial team has done a great job of driving toward a liquidity and a solid risk management profile. You look at, specifically, our convertibles, they're in the money fairly deeply at this point. If you discount those and really treat them as what they are, at this stage, at least, as equity, we really have very little debt. As we move forward, what we don't want to do if we diversify and grow, is we don't want to take away from the strong balance sheet that Mark, Lorie and the team have delivered here. So, we might look at innovative ways of hedging risk and working, if we do larger transactions. I would say that the Board of Directors has largely focused on how to deploy capital right now. It's how we're spending our time, and it's another reason why we wanted to bring on another money-center expert like an investment expert as we did with Kelly Williams.

Great. Thanks so much.

Thank you.

Thank you. Our next question is coming from the line of JB Groh of D.A. Davidson.

Good morning, guys. Congratulations on the quarter. Bill, you, in the past, have talked about train speed. I've noticed a few industry comments and articles and such talking more about maybe implementing some limits there. Can you talk about your thoughts on that and what you think the impact would be there?

I think that the railroads probably need to do a better job of getting out the story, their story, their side of the story on train speeds. I really do see the problem more as, one, of having the wrong car or a mission that has to be carried out by the railroads. The railroads, as we've recently pointed out, are required, and one of them has recently been sued because of this. They are required to carry cars that are certified by the government, despite their own safety experts saying these cars are not suitable for unit-trade service for flammables and other hazardous commodities, the National Transportation Safety Board. The railroads have reduced speed limits. I just noted that Burlington Northern came forward with another voluntary reduction speed limits through population centers more than 100,000 people. At this point, there's quite a lot of just lobbying and posturing that goes on at this stage in a rule making. I think that the important thing is to watch what these guys are doing as opposed to what people are saying about them.

What they're doing is that they're training first responders. They have reduced speeds to reasonable levels. There's a practical limit to how much speed reduction one can do. I think the railroads are doing everything they can do to reduce the derailment incidents. They put billions and billions of dollars into track. It all comes down to the need for safer tank car standards at high speeds, for higher speeds, with scale in the trains. The mass in the trains times the velocity creates the force.

In the old days where you had mixed [consense] trains, you could afford to carry hazardous material in lighter skinned, unshielded tanks with inadequate, by today's standards, rollover protection. You can't afford it now. In the last month we've had four major derailments that demonstrate that. So, the car standards really matter. That's all we can address in any case, and that's why we're focused on safer tank cars, now.

Have you guys actually delivered any of the tank cars of the future?

Yes, we have.

Okay. I just had a couple modeling questions. Lorie, you mentioned FX gain, I guess that's in the interest and FX line. Could you give us the dollar amount of that, so we could back to the true interest cost was?

Sure, I believe it was -- and you'll see this later today when the 10-Q is filed. I think it's about $3 million, pretax and pre non-controlling interest.

So if we subtract that out that gives us a better run rate for the interest?

Correct.

Then, on the SG&A, I think you guys mentioned there that it was up a little bit in Q1 from professional services, so is this number here a pretty good run rate for the rest of the year?

We do have incentive compensation that is expensed concurrent with when we have earnings. As we've indicated, the back half of FY15, we should have stronger earnings than in the front half. We will have higher incentive compensation expense during the back half, so it's within a range that will probably creep up a bit.

Okay. Thank you, that's helpful.

Thanks, JB.

Thanks, JB.

Thank you. Our next question is coming from the line of Mr. Steve Barger of KeyBanc Capital Markets.

Thanks, this is actually Ken Newman on for Steve Barker this morning, thank you.

Hi Ken, how are you doing?

Good how are you guys? Congrats on the quarter.

Thanks.

Just wanted to ask a question about the frac sand car market in terms of inquiry activity. You gave a lot of great color on the tank car market. Just curious with petroleum car loads slowing since the beginning of the year, have you seen inquiry levels come down for the frac sand side of the market?

As you know, Ken, and we published for over the last year and part of that, we deliberately diversified our product offerings and our tactical plan for the market. We still have a lot of frac sand inquiries from the larger players, which we've tried to -- and stronger players who are more likely to consolidate that and succeed in that market. We're still seeing quite a lot of demand there, but we're trying to leave room for other products. I think that in areas like automotive, grain, in the boxcar demand and other areas, we want to be sure we can deal with our long-term customers who concentrate in those markets.

The need for sand is going to continue with any meaningful level of drilling. One of the things that you have to watch very closely is the technology continues to mutate and improve. I think that most people, when they look at rig counts, don't recognize that some of these companies that are on the head end of technology have reduced their time for drilling by 50%, so that statistic alone would reduce the number of rigs in operation. But, the amount of sand that's required under the new techniques continues to expand fairly dramatically. I think this is -- you talk about that market having a softness is not fundamentally based on some statistical data that would be worth really examining closely.

Understood. Then, just one question on the appointment of the new Board member. It looks like she's got some significant experience in private equity. Just curious if we should take that to mean that the Board and Greenbrier is looking, or more open to looking, at transacting deals in the near future?

That's a great question. We are trying to work with our whole Board to diversify the Board and to, as I said earlier, add strength in knowledge of what drives a good investment decision. Private equity people have a great perspective on things like G&A, for example, and run rates. They are -- Kelly's got diversified experience in making investments in many different industries. The central core business is a very key value and we think that having that element on the Board will give us some additional depth and discipline in a money center. This will be our third Director from New York City, from the East Coast, I should say because they may not all preside -- one of them, I know, does not reside in New York City and is quick to point that out to me, but from the East Coast and all very good financially based, smart investors.

Understood, thanks.

Thank you.

Thank you. Our next question is coming from the line of Mr. Willard Milby of BB&T Capital Markets.

Hey, good morning, everyone. Just wanted to ask a question on the contribution from GIMSA in the second half of this year. If we look back at a year ago, we saw a very strong second half, and I think you talked about having a strong second half this year. But was wondering if that contribution couldn't be even higher than it was last year to the tune of maybe 25% or so to where the contributions maybe $15.5 million or $16 million in that line?

You're referring to some guidance on the non-controlling interest line item on the P&L line, Millard?

Right. The GIMSA --

Right. Yes, this is Lorie, Will. It is expected to increase, as we talked about even with last quarter's call, as we are putting more volume through our lease syndication means that we've got some of the production that's coming out of GIMSA is going through that model as well. As that gets syndicated off to financial investors and other leasing companies, then that margin will be earned. So again, the gross margin that you're seeing on our financial statement this quarter, which is a record, doesn't include all the production coming out of GIMSA. That will come through in a future quarter, and at that point in time when we recognize those higher gross margins, we will also have higher minority interest or non-controlling interest.

Okay, but you're not just setting the target for us for any kind of guidance on that specific line?

I think it will definitely be quite a bit higher than where we were for the second quarter, probably higher than what we saw in any of the quarters last fiscal year, again because we have higher production rates and we're earning higher gross margins. It will probably be in the $15 million to $20 million range.

Okay, thanks. Along the lines of higher production, can you speak a little bit about the delivery cadence in the second half of this year? Are we expecting Q3 and 4 to be about the same level of the deliveries, or is there going to be one quarter that might be heavier than another?

Right now I think that between third and fourth quarter, fourth quarter might be a little higher. I would say, on average, they are probably going to be fairly similar to each other.

All right. Thanks very much. I'll hop back in the queue.

Thank you. Our next question is coming from the line of Mr. Mike Baudendistel of Stifel Nicolaus.

Thank you. In your press release you talked about, I think you called it a significant multi-year order that was part of the 10,100 units received during the quarter. Can you give us any sense of magnitude of how large that multi-year order is, it would give us a sense for how strong the demand was in the quarter for orders?

Really, at the request of our customer in this area -- and by the way, while we acknowledged a multi-year order during the quarter, we have several multi-year orders in our backlog, not only the one this quarter but several others in previous quarter, which, again, we believe is a show of conviction of our customer base, as well as ourselves, that there is a lot of strength left in the cycle. Indeed, our backlog as a whole goes into, on certain production lines, even goes beyond 2016 all the way into 2019 as a result of obviously of multi-year orders overall. So, at the request of our customer, we did not break out the detail on that particular multi-year order. It's fair to say that it was significant. It's also fair to say that excluding the multi-year order that we still had a good run rate of orders for this past quarter.

Okay. Thanks, that's helpful. Then, another question is, I think the last time you did one of these earnings calls three months ago you talked about a customer that you had a discussion with where they came to you and maybe wanted discuss cancellations or renegotiations to an order. Have you had any similar conversations with customers, the past three months?

No. That earlier customer was, we satisfied that customer and that's all taken care of. We haven't seen any repeat of that.

Okay, good. Just one last question is, as long as the backlogs are now, it seems like you're pretty well set for most of FY15 and 2016. What car types do you maybe have excess build flats for those two fiscal years at this point?

We still have some space, which tactically we have worked with customers to maintain, but we could build cars or defer cars. It's a flexibility we built into some of these multi-year deals at our discretion. As Mark points out, the good news is you get a large order book. The other news is that as you build the order book out, you don't have as immediate delivery as possibly some competitors. This is good news and it also can be not so good news. I think, in general, 2015/2016 is very solid, and we're currently filling slots in 2017 and 2018 and even all the way out, as Mark says, into 2019. The key to that is just very strong customer relationships and loyalty with the ability to plan with those customers for what their business models are going to look like and offer them a reliable product over time with quality standards that they can count on.

Okay, great. Those are my questions, thank you.

Thank you. Our next question is coming from the line of Mr. Eric Ross of Bank of America.

Hey, guys. Congratulations on the good quarter. I just had two quick questions. One, I was hoping you could talk about where you think we are in the cycle? I know you mentioned this idea of orders extending out into 2017 and 2018, but for quite some time now, for several quarters, we've seen the backlog grow and orders have exceeded estimates. So, just wanted to see if you'd give some thoughts on the cyclicality there?

I know there's a lot of chattering about cycle apprehension. Once you go through a down cycle like 2009 everybody gets a little gun shy, I suppose. Look, this low energy prices have created a very good boon for consumers. That's what was needed to have consumers kick in and buy, and they're doing it. Automobile shipments are up. We're seeing some revival even in housing inquiries.

Across our product mix, we don't see it. I guess you do see it in CapEx. You see some CapEx softening in the energy field, but these energy prices, longer term, we think are likely to be much higher than they are today. We notice that the FTR, one of the industry groups, just revised upwards its models for 2017, 2018, and beyond and actually increased its view of 2015 shipments and 2016 shipments, so I don't see it. I know people are afraid of it. We don't see it yet, or I would not have said that it's not as good as it gets.

Finally, I want to make it clear that without damaging our balance sheet and giving up the great liquidity and leverage we have right now, we are looking at continuing to diversify this model so that with the several years that we've got of open runway, the best visibility I've ever seen over 30 years in this business, we should be able to put the Company at a very solid footing for growth in the future where we won't be as highly reliant on the business cycle for freight cars. The leasing model does that. Our repair model does that. Our parts and wheel model does that.

We will continue, as we have said to work on the excellent foundation we have, not only in Latin America through our basing in Mexico but with our European subsidiary reaching additional markets with that Company. I think that, over time, the diversified model will serve Greenbrier very well. It's not your mother's Greenbrier. It's totally a different Company than it was five years ago.

Okay, that's very helpful, thank you. Just the other question -- I know you guys touched on this a bit. With free cash flow scheduled to step up at the end of the year with some of the investments that you guys are making terming out, wanted to understand if there's any thought on getting more aggressive in terms of the capital structure and what you see as a cap on where you could reach there?

Aggressive is not a word our CFO is terribly fond of sometimes, but we could be more assertive. Couldn't we, Mark? (laughter)

I think we would just reiterate what we said before is that we'll take a -- you're correct to look at our free cash flow and the potential here to generate meaningful free cash flow over the next several years here. As we said before, we'll continue to take a balanced approach as to how we deploy that capital. We do have a current stock buyback program in place, as you know, and we continue to pay a dividend. We'll really take a balanced approach and see where is the best opportunities between the various buckets to deploy the capital.

There's certainly lots of opportunities out there in our space or a related space. We are trying to remain concentrated, focus on ROIC, but there are certainly opportunities to consider transformational strategies. The Board is really focused on how do we invest for the future? How do we best put Greenbrier on a footing for a sound and diverse future?

Okay, great, thank you.

Thank you. Our last question is coming from the line of Mr. Sal Vitale of Sterne Agee.

Good morning, all. Sorry if I missed some of your comments, I got on the call late. Did you talk about your orders for the month of March?

We just briefly mentioned them, only in passing in Lorie's remarks. But what would you like to know?

Just how many orders did you receive? Can you give any color there?

Sure, hi, Sal, this is Lorie. In my prepared remarks I indicated that subsequent to February 28, we've received orders or awards for about 1,000 units.

Okay. So, that's a significantly lower than the February quarter, and I understand you had the multi-year orders there. Is it fair to say that there was some, beyond even that multi-year order you received in February, there was some pull forward say from the May quarter into the February quarter? How do I think about that?

Sal, I think the best guidance I can give you, and we as many times as we say this, it's hard to wrap your head around, but orders and timing of orders and size of orders in this industry are continually lumpy. Trying to have an absolute prediction as to in one finite period that it means something major is really tough to do. We've got -- we're talking to our commercial group. There's a lot going on in the pipeline of inquiries, so it's nothing more to be read through than that.

Sure, understood. Did you give any data on the value of the orders received in March?

We did not at this time.

Okay. Just going beyond that, I guess looking at -- just want to make sure that I understand this lease indications model. Lorie, I remember on the last call you mentioned that in the November quarter, there were 400 cars that were produced for syndication that were not actually sold so they dropped down to the balance sheet. You mentioned that once in the back half of the year, once those cars are actually sold externally, you'll actually realize the revenue and the margin there. You commented that the November quarter's margin was all the more impressive because it excluded, I guess, the profit from those cars. Fast-forward to this quarter, not only were those cars not sold off, but actually I think you added 100 cars to your balance sheet in terms of the lease syndications line there?

Right. So, Sal, let me just -- I want to make certain that I clarify. You can't look at the number of units that are in railcars held for syndication and assume that stays stagnant. We have included a couple of additional slides in our supplemental information on the website to translate this out. So those cars that were there at the end of November, I don't have a specific number, but more likely than not those were syndicated during the second quarter and there's new activity that's on the balance sheet at February 28.

Right, okay. So the margin pop you saw in the February quarter does include some of the contribution from those cars that were sold off externally?

It does. And you know what, Sal? Maybe we can take this kind of detailed level of questioning off line.

Sure, that's fine. Just one other question on the backlog. You ended the quarter with the 46,000 cars in the backlog, and I assume that if I look at your deliveries guidance, pretty much all of that comes out of the backlog. Is that fair to assume?

Yes. Everything that we're guiding to for deliveries for this fiscal year, we've got orders booked, yes.

Sure, so that leaves about 33,700 cars. Any color on how much of that delivers in 2016?

Not at this time. We'll give more color and guidance on FY16 as we get close to the end of 2015.

Okay. Then, just last question. Marine revenue during the quarter, any color there?

Marine did much -- it did better this quarter than in the last quarter. It's ramping up as there being very successful on the barge they're building for Kirby. But, it's -- I don't know.

I don't think any additional color, no.

Okay, that's fine.

We just continue to be optimistic of that business and continues to have good sea legs.

Okay, great. Just last question here, really, is -- just looking at my notes. You mentioned the peso. Can you give any color, and I understand you can't quantify how much the margin improvement from each of the three buckets you mentioned, but can you tell us how much of your cost of goods sold this peso denominated as opposed to say the revenue in the manufacturing business?

It's easy to say that revenue is 100% US dollar. No, we don't break down our cost of sales by currency, so we're going to probably go ahead and move on to the next call.

Okay, that's great. Thank you very much.

Thank you, Sal. Appreciate it. That's it.

All right.

Thanks, everyone. We appreciate your interest in Greenbrier and your attention today. If you have any follow-up questions, we'll be happy to take those a little bit later today. Thanks so much.

Thank you.

Bye-bye.

Thank you. That concludes today's conference. Thank you all for joining. You may now disconnect.