Greenbrier Companies Inc (GBX) 2015 Q3 法說會逐字稿

Hello and welcome to the Greenbrier Companies third-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 now begin.

Thank you very much, Missy. Good morning everyone, and welcome to Greenbrier's third-quarter FY15 conference call. On today's call I'm joined by our Chairman and CEO, Bill Furman, and CFO, Mark Rittenbaum. Today we'll discuss the results for the quarter ended May 31, 2015 and comment on our outlook for the remainder of 2015. After that, we'll open up the call for questions. And 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 today on the IR Section of our website.

As always, matters discussed on the conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today we'll 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 statement made by or on behalf of Greenbrier.

The highlights for our third quarter include record revenue, adjusted EBITDA, deliveries and the value of our backlog. Aggregate gross margin of 20.9% was a new quarterly record, and was driven by performance from our manufacturing and lease syndication businesses. Orders during the period totaled 5,300 new rail cars, valued at $640 million. Our diversified backlog remains a robust 45,100 units with an estimated value of $4.86 billion.

While our revenue and EBITDA this quarter were both all-time highs, diluted EPS missed Street expectations by $0.30 per share. Let me take a minute to bridge that gap. First we had nonrecurring costs of approximately $5.2 million after-tax, or $0.16 per share, for professional fees and other transaction costs associated with a potential acquisition for which discussions terminated in June and our advocacy of new tank car safety regulations.

Second, $100 per ton decline in scrap metal prices in a single month adversely affected our wheel services business by $1.1 million after-tax, or $0.03 per share. And third, net earnings attributable to noncontrolling interest, better known to some of us as minority interest, was higher in the third quarter than for the first half of 2015. This increase is due to a higher proportion of our deliveries, about 45%, being built at our 50/50 joint venture GIMSA. As many of you know, for accounting purposes we consolidate 100% of GIMSA's revenue and gross margin. The line item net earnings attributable to noncontrolling interest represents our partner's 50% share of the GIMSA result, which has to be deducted in determining Greenbrier's earnings per share.

Though the more high margin units delivered in any given quarter from our GIMSA facility, the higher the minority interest line item will be. For the fourth quarter, we expect this line item to be at least similar to the third quarter. Now I'll turn it over to Bill.

Thank you Lorie, and good morning. Greenbrier had a good quarter, considering the distractions in the quarter which included a serious effort at a strategic acquisition on an opportunity that presented itself, and we looked at it very seriously. At the end, we could not bring it to closure.

We also wrapped up our advocacy for safer tank cars and worked on some other strategic projects related to our international strategy. So it was a busy quarter. We are very pleased with several of the records we hit this quarter, as Lorie has mentioned.

We also had a strong market share for the first three months of the year, as reported by ARCI. And we were clocked at 43% of all orders received during that first calendar quarter, and we fully believe we can hold our own in the evolving marketplace. The market is changing somewhat, and it will always change. Still for us, it presents many opportunities.

On a revenue basis, book-to-bill remained positive for the quarter for the seventh consecutive quarter. We are happy with the order book we've received. And we think we can continue this record.

We have a strong commercial and leasing platform, and our manufacturing base is nimble and is very diversified. Our market share has doubled over that enjoyed in past cycles in the upward part of a cycle. And we've always been much better at gaining market share and closing transactions in down markets than in up.

I would not describe this as a down market. I would say that 15,000 cars, as reported by the industry, is much more close to a normalized replacement demand market. So I think that people are really overreacting to -- a little bit to some of the things that they see in the marketplace. It is a complicated world, and energy and other things have affected these markets. But perhaps just really quickly mentioned a couple of those in a moment.

So the market is not really down in the sense that it might have been in the late -- in 2009. It is changing. And while we are experiencing some speed bumps, at least compared to the robust levels of demand as reported in the last two years industry-wide, we've worked for the past five years to prepare ourselves for a market like this, which is normal -- a normalized market. So we remain optimistic about the future.

A comment about strategy. What kind of acquisition we were looking at, why now? Well, the reason we're looking at opportunities and an interesting opportunity presented itself, the reasons are simple.

The $5 billion backlog, which represents almost a two-year run rate if we ran it continuous production for that, a nimble and diversified manufacturing footprint, the completion of major CapEx spends. We have prospects of several strong years of revenue and cash flows, and a much stronger -- and we possess today a much stronger balance sheet than we have for many, many years.

Look at Pages 15 and 16 at sequential EBITDA growth in the handouts to, or the attachments to our press release. And we expect to continue the strong trajectory of EBITDA. And therefore we'll have cash to invest.

From this position of strength we can look closely at strengthening our footprint in the business we know well. These are manufacturing, leasing and mechanical services, along with a growing and strong international footprint, which will diversify and hedge currency driven swings such as we are currently seeing in North American rail loadings in certain segments, in some, but not all, car types.

A rail car, as we've said to you many times before, is not a rail car. One has to look at the individual loading segments and look at what is driving the top-line statistics. While we cannot say very much more about the opportunity that we pursued due to the NDA, we can say that we took a very serious look. And in the end just did not believe we could get a deal done on terms that we felt met the times.

We're very pleased that the Department of Transportation [and] Transport Canada decide, in effect, to adopt Greenbrier's recommendations for safer tank cars, making our tank car of the future the gold standard for transportation of hazardous and flammable commodities by rail. Those regulations were only enacted and adopted officially this week, so they only now became effective.

We're certain that they will protect the industry from liabilities associated with safer tank cars in hazmat and flammable service. And also as stakeholders in the entire industry take time to reflect on the meaning of these rules, how they will be enacted and implemented by refineries and railroad stakeholders through various squeezing out or pricing mechanisms, the regulatory changes will produce retrofit and replacement demand which will add legs to car building and repair, if not immediately due to the times and over the next year or so.

Some factoids to consider. Energy prices are not down, they are trending up from lows both in dollar denominations and in real terms and other currencies. Currencies do matter.

Currencies are one of the major drivers for a reduction in agricultural demand, exports for coal and so on. That in turn has affected velocity. But oil prices are settled in US dollars, and US dollars are stronger while other currencies are weaker.

Why does that matter to us? Why does that matter to the Greenbrier and to the shareholders of Greenbrier? Well, rig counts in North America are down, but drilled and cap rigs have grown considerably. Sand amount is down, but tremendous latent demand remains as energy prices recover. Fracking and energy independence is a long-term thing for North America. Yet, we have a balanced portfolio.

I'm not sure why certain analysts have singled us out for exposure in the energy field. We have less exposure than our peers. However, we aren't complaining about that. We're just pointing out some obvious things. A dollar-driven commodity demand falloff, as well as weaker coal and rail caps ex has improved velocity by rail. This may well go on for a while, but not forever.

So it matters that, for example, some large stakeholders, for example in the Middle East, Saudi Arabia in particular, paid in US dollars but can spend in weaker currencies. Consider the equivalent price of oil, for example, in euros or in rubles over six months ago. So this fact allows them to live with cheaper oil prices for a time, but not forever, given geopolitical pressures.

Secondly, Greenbrier has a very strong footprint in Mexico and we're strengthening ourselves in Brazil and the Americas. Currencies are making exports much more attractive. And those currencies, particularly in agricultural and in manufactured products where both countries have a significant GDP footprint. This is a developing tailwind for all of our international business. And we do about 65% -- manufacture about 65% of our revenue base right now in international jurisdictions.

There are increased geopolitical stresses, not just in the Middle East but in Europe, which create upward pressure on the value of fungible commodities. While Greece is a tragedy for the Greeks, it is not for Europe. Oil is a fungible commodity, and do not overlook what of North America has achieved in energy sufficiency. It is long-term play and a game-changer.

We're very pleased with the core strategy, and while we live in interesting times we embrace change and opportunities that changing markets may bring. For us, I think it is a time of great opportunity. Turn back to you, Mark.

Thank you, Bill. I'll make a few concluding remarks and then we'll open it up for questions.

Just turning a bit to liquidity and our outlook, we ended May with over $325 million of liquidity from our cash balances and available borrowings under our credit facilities. Our net funded debt LTM EBITDA is now less than 1 to 1, at 0.9 times and reflects our continued focus on strengthening the balance sheet.

We remain committed to enhancing shareholder value. In the third quarter we announced our fifth straight dividend of $0.15 a share. And we repurchased 23,000 shares of common stock at a cost of $1.5 million.

You'll note repurchases were a little light this past quarter as we were precluded from repurchasing our stock due to the trading window being closed as a result of the potential acquisition which was under consideration. We do have availability of over $42 million available under our share repurchase program. And we continue our balanced approach of reinvesting free cash flow in high rates return projects, acquisitions in our core competencies and returning capital to shareholders.

We continue to stay on track. Our integrated business model and flexibility in an ever-changing market will allow us to achieve our two financial goals initiated during fourth-quarter 2014 call. With our aggregate gross margin reaching 20.9% during the third quarter, we achieved our longer-term goal of at least 20% margin a full year ahead of plan.

And when we announce our Q4 earnings, we'll be giving outlook for 2016, as well as new intermediate-term financial goals. We also remain on track to reach our 25% ROIC by the second half of 2016, with an ROIC annualized from this last quarter of 21.3%.

Turning to more immediate guidance. Based on current macro and industry trends, and excluding the nonrecurring cost of $7.5 million pretax, or $0.16 per share from the third quarter, we reaffirm our previous guidance of revenue of $2.6 billion to $2.7 billion for the current year, adjusted EBITDA of $420 million to $435 million and deliveries of approximately 21,500 units. Our guidance is narrowed for the year to $5.70 to $5.85, again excluding these nonrecurring costs of $0.16 a share.

As I just mentioned, we'll provide outlook for 2016 on our next cal, but we certainly, based on current trends and our strong backlog as Bill pointed out, expect strong earnings and free cash flow for the foreseeable future. Now we'll open it up for questions. Operator, if we could turn it back to you to please give instructions for participants to do so. Thank you.

(Operator Instructions)

Justin Long, Stephens.

I wanted to ask the first question about the rail car delivery guidance. I guess the full-year expectation was unchanged, and it implies a pretty significant sequential increase to around 6,600 units delivered in the fourth quarter. Could you speak to your level of visibility to that estimate, and is that a good quarterly run rate to think about as we enter 2016?

I'm going to let Mark Rittenbaum and Lorie address some of the granular aspects of your question. But one of the things that occurred in this quarter which also accounted for an earnings shortfall is we had a little lower actual syndication in the quarter than our plan just being deferred into the next quarter. And with that as background, we should have a stronger performance which would bump up revenue even more than the record that we had in the quarter. But I think we had revenue recognition slightly less in this quarter. But I'll turn it over to Mark and Lorie to get into the details.

Right. Justin, just picking up on that theme, on Slide 5 of our supplemental slides, specifically to Bill's point, syndications were about 1000 units this quarter compared to 1800 in Q1 and 1700 in Q2. As a reminder to folks that are newer to the Company, we initiate lease transactions with customers and then we bundle those transactions and then syndicate them to investors, and then manage those assets on behalf of investors. And we bundle them into big packages and syndicate them.

So that in and of itself causes a timing difference between when we produce a certain part of our deliveries each quarter and when we actually deliver rail cars. So a timing difference between production and deliveries.

So in the fourth quarter we expect that the number of syndicated units will be closer to the first- and second-quarter numbers. And within that range, and while production overall will be slightly ahead of the third-quarter levels.

So we have very good visibility into the deliveries for the fourth quarter. And again, the increase will be due to the increase in syndications. So we feel good about the guidance for the year.

Turning to next year, that increase in unit count would imply roughly about a 25,000 to 26,000 car delivery for 2016. I would say it's too early for us to give that kind of guidance and that kind of leap up from a 21,500 unit level of this year to something in the neighborhood of 25,000 to 26,000, but we definitely see a strong 2016 ahead of us.

Thanks. That's helpful. And maybe a follow-up on that point. I know you're not going to give detail on 2016 guidance until next quarter. But just given the backlog today from a high level, do you have enough visibility to say that your earnings should be up year over year in 2016?

I think that it's probably reasonable to expect that when we come out with guidance, that that would be directionally correct from what we see right now.

Okay. Great. Last question. Bill, you spoke a little about strategy for capital deployment. I was curious if I could get your confidence that you can deploy capital via an acquisition that reduces the cyclicality of the business? Or just given the move in the stock price we've seen here recently and the fact the acquisition you were looking at in the quarter fell through, would you lean more towards a buyback, or utilizing more of that buyback as a use of cash?

No. I think I pointed out our strategy is to deploy capital wisely, which would be not only accretive but would serve our return on invested capital goals. The acquisition we looked at had much potential to do that. But again, as we got into the dirty details of it, we couldn't come to a deal that we felt served the times.

So we're also looking at deployment of capital on high ROIC returns for efficiency, especially in areas like automation, further efficiencies which will push our gross margins even in changing markets. And will help ROIC, and also through dividends and through a balanced approach of share buyback.

Again, I don't fully understand. Our stock doesn't trade, seems, on backlog because we've got a strong backlog. We've got improving margins. It's not seeming to trade on that.

There seem to be very professional investors who are trying to time the market here or predicting a peak. I personally don't get it, because this would apply to everybody, but hey, life isn't fair. So we're not complaining.

We're just going to do our very best to continue to pound out very strong earnings and cash flow. And at the end of the day, one of our Board's most important things to do is invest that cash flow wisely. They're fully engaged in everything management's doing and we're enthusiastic about the future. We are not discouraged by current market circumstances. Many, many opportunities out there for us.

Okay. That's helpful. I appreciate the time this morning.

Matt Brooklier, Longbow Research.

I had a couple questions around regulations. Just curious to hear your updated thoughts on the potential magnitude of both replacement tank car orders and also retrofits. And then also the cadence at which you think that will unfold, the order activity potential and also retrofits.

Well, as you know from reading the summaries of what occurred, there's things that are apparent in the reports and there are things that are not so apparent in the reports. What's apparent is there's a period of time that allows shippers and other stakeholders to decide how to handle the new regulations, whether to be proactive about safety, protect the public or to allow the window to run for a period of time as they analyze their options.

The matter's complicated, of course, by improved velocity and the fact that there are cars for some shippers and some stakeholders being even stored. And others, they have demand.

So in the current quarter, for example, we had tank car orders in this quarter. We expect to continue to have tank car orders. So there is just a little confusion about what to do.

As a shipper, should you retrofit? If you are leasing cars, should you let those cars go back? What's the timeline the government is giving you to do it? I think that's all preoccupying folks a lot more than maybe it should, because at the end of the day I think the General Counsel's -- most offices are going to say, as the refiners are saying, hey, we want safer cars.

Clearly the railroads' talking about something else that's not so apparent. The railroads are pushing for safer cars. That's really apparent. And behavioral -- behavior will pushed safer cars into the future.

So I think the wildcard here really is how geopolitical forces, especially the dollar, has caused and contributed to more improved railroad velocity which allows them to run a little fewer cars with the same number -- or fewer cars that produce the same amount of product. And I think that as this sorts out, it will reach a new normalized level.

I really do see a lot of this going on. Coal exports are down sequentially like 25%. That's a big number in these gross numbers. And it helps improve velocity.

We don't think the energy game is over at all. It's in a pause like ethanol was a few years ago. Everybody loves to predict what's going to happen.

We can't predict it, but we see the underlying forces. And the underlying forces are positive for energy independence in North America. So that's my response.

Okay. There's been a lot of talk around industry retrofit capacity. There's varying numbers out there. I was curious to hear your thoughts on industry retrofit capacity, and then also if you're able to at this point, talk to GBW's potential annual capacity to do retrofits on a go-forward basis.

GBW is continuing to be on the path as last advertised. We have the capacity to do more retrofits than likely to be demanded. The whole issue of retrofit capacity was a red herring, which is both cynical and hypocritical.

There's plenty of retrofit capacity for what's likely to occur. Right now there's not been a whole gang of people lining up to do retrofits yet. Whether that will come and what magnitude it will come, we'll have to wait and see.

But I think that we are ready to do what we said we would be able to do. We can easily reduce 25%, or 20% of the total demand if required. So we have currently a run rate capability of 2500 units or more.

In the pipeline, we can take it up to 3000 cars a year. We can do a lot of retrofits if we're called upon to do so. So I'm not suggesting that we are not receiving retrofit orders, we are.

But there's not a big gang of people lining up saying, let's retrofit the car. So that was all a bunch of hyperbole. We all have a lot of capacity to do the work that's necessary over the time frame that the government has given us to do it.

Okay. So to sum it up, it sounds like the digestion of regulations at this point with respect to replacing cars and retrofitting cars, that's taking a little bit more time to develop. But we're still feeling good about the potential total opportunity over the next couple years?

We see it as something that will add a tailwinds in 2016, 2017, 2018 as these regulations get fully implement and people decide how they're going to deal with it.

Okay. Appreciate the color.

Thank you.

Bascome Majors, Susquehanna.

I wanted to follow up on the syndication questions from earlier. It looks like for six quarters now the dollar value of the inventory of rail cars held for syndication has risen. And the number that you produce has exceeded the number that you've sold.

You mentioned a couple of minutes ago that the third-quarter syndication volume was less than you expected when you entered the quarter. Can you give us a little color around what drove the shortfall?

When you expect this net investment in rail cars to shift to more to a monetization sequentially? How significantly that might reverse, and what's giving you that conviction?

Let me just say that this is not a homogeneous and differentiatiable production function. It's not sequentially linear. We from time to time will have issues in documenting or closing transactions. So there's nothing particular going on except just background noise.

It's not unusual for some transactions to slip into the next quarter. Directionally when that happens, it creates a little bit more load on the assets carried for sale, but there again we get interim rent that's much more than we could invest in anything else. And the transaction is money good. So we're getting rates of return on that fleet that are very, very good.

I don't think that anything should be read into the fact that the differential between production and revenue recognition was driven by the syndication lag. It's just a normal possible thing that can happen quarter to quarter.

It's like making sausages, I suppose, in a way. We don't look at it like a straight line kind of thing. It's very normal, and we're not at all concerned about it.

Well, looking into the second quarter you seemed to have some conviction earlier that that syndication sales number will rise back up. To around or better than it was in the first half of the year.

Can you give us some color into the visibility you've got there? Are there hard sales agreements from financial partners? Are there other commitments that are giving you that underlying conviction? Anything you could share here would be helpful.

Sure. Mark or Lorie, why don't you talk to that point? That's a very fair question.

Right. Appreciate the questions, Bascome. Again, to close the thought on what Bill was saying as I answer your question, is that there's a continuous churn of what is in these numbers. So that much like we're operating at a higher syndication levels so in driving more volume through our lease syndication models. So we're constantly turning the assets that are in here.

But specific to your question. We work with multiple investors and we do have takeouts for what is in here. And indeed, we are currently documenting since the end of the quarter we closed on about 500 units in the month June. And back to a question that was asked by Justin earlier, we're in the midst of documenting the remainder of the volume for this quarter that would give us the confidence that in documenting it with an institutional investor, that would give us the confidence that we would meet or exceed the goals for this year.

Can we make a fundamental point about the category itself? These are all transactions that we initiated, but under lease and we have equity investors who are buying that kind of car. And so it's just a timing issue.

It's -- these are all -- none of these cars that are assets held for sale are cars that we don't feel are money good transactions based on the leases that we've attached to them. So I think that's a very important thing.

We don't have a block of assets out there that we bought for inventory and we're trying to attach leases. We attach leases first and then that go into that bucket.

Understood and appreciate the color there. One other question. The lease fleet utilization was down about 2 points quarter over quarter.

I know 97.5% or so is still a very good number in a historical context. But could you talk briefly about what you're seeing by car type in that market that's driving the decline utilization, whether that's temporary, or if just last quarter was maybe nonsustainable spike to plus 99%?

I think part of the simple math, Bascome, is just when we have the number of units in our owned lease fleet that we do of not rounding to 10,000 cars, when you take 2% of 10,000 cars it only takes a couple of hundred cars that may be between leases that would drive that number. So there's not anything fundamentally that's going on, other than a small fleet size that is driving that in particular cars that are between lease.

Overall, the lease market is robust out there. We've already talked about the energy markets. And coal, coal is the area of particular weakness.

While we don't have many coal cars in our own lease fleet, we do have a number of coal cars that we do manage, particularly in our WLR GEX relationship where we also have the 25% economic interest there. But outside of -- and that would be the area of particular weakness, but outside of that area, the markets are still solid.

Understood. I'll pass it on to the next guy. Thank you.

Gary Wilson, Bank of America.

Just wanted to start off asking about, if I could get your thoughts on where we are relative to peak backlog? And maybe if you could give a little bit of an update on any negotiations with customers over cancellations or extending the delivery schedules for cars?

Well, thank you. We have not had any cancellations. We have encourage conversations with customers where we can find value adds for them and for us.

We have had some swap-type transactions that are valuable to both parties. We appreciate our strategic customers. We're always ready to have a dialogue, but we haven't had any cancellations, nor have we had any value reduction from that kind of thing.

Where we are exposed, and I think we're exposed less than our peers, it would be in the energy markets, specifically in tank cars and sand cars. But we have a very low percentage of our total backlog in oil cars. And the percentage we have is largely tank cars of the future.

So to be more granular about that we have 2500 cars that have that design that we have in backlog, and those cars are very valuable. So we don't expect pressure there.

Sand has declined by about 10% in total, but the amount of sand required per well is exponentially increasing. So we see that as a temporary blip. And there we have a similar exposure.

So we haven't -- we don't feel -- we feel pretty good about this so far. Not to say that it won't happen or that people won't come and talk to us, but these are opportunities as well as issues. And they're opportunities for value creation, which is how we approach the market. How can we create value for customers and for ourselves out of changing times?

Okay. Great. Thank you. Along that vein, is it possible the new tank car regulations provide some support for that backlog? Or do you think a lot of those orders have already been placed, or is that something that doesn't happen for several years into the future? What's kind of thinking around that?

Everybody looks at these tank cars as if they're homogeneous and differentiable, but they're not. A lot of the cars are not jacketed that are used in some services, and the jacketed cars are the ones that are going to be the safer cars longer term.

So over time we expect a movement towards either retrofitting the jacketed and insulated cars or to retrofit those, and we expect some legs right now. What's confusing things right now, though, is coal loadings have an effect. Agricultural loadings have an effect. The effect is on velocity.

As we normalize demand down to for the last trailing quarter, the first three calendar months of the quarter, demand is at a rate of 60,000 cars per year. 16,000 times four, a little higher than that, which is a traditional replacement type demand, or a normalized market.

It's unfair to think that 140,000 car backlog industry-wide is sustainable or even desirable. To us, it creates issues when we have a $5 billion backlog. How do we fit customers in that we'd like to fit into our schedules.

Yes, there are some issues generally in managing slots, but we are quite good at that, and I think we are eagerly looking forward to deploying our capabilities in this changed marketplace. But it's certainly a very good year when you can look at a 60,000 to 80,000 car order base.

I'm just amazed at the notion that we ought to be looking at order rates and linear backlogs as an index of the health of an industry that's so vital to North America's prosperity in the future. It's remarkable. To me that the people are so obsessed with us and trying to call a peak.

I don't know if we're at a peak. I don't know if we have momentum upward, and neither does anybody else. But I know our business. We know our business. I think we're going to be running our business as efficiently as we can.

Okay, 6hat makes a lot of sense. Thank you on that piece.

Let me throw in one other one there. If you could provide a little more color on what kind of restrictions you guys had in terms of the buybacks and what you're thinking is now? Obviously with the big share price decline, I would think that you guys could potentially be looking to get more aggressive with the buybacks. And wanted to hear some thoughts and if those conversations have been had with the Board.

I think as we pointed out in our press release we have $42 million of unused capacity that has been given to management to execute. We certainly think that Greenbrier has gotten hit by a lot of fear and concern about calling a peak. I think we're a pretty honest Company. If we see a peak, we'll call one.

The market's changing, and it's going to change. That's the nature of the business that we're in. We sure think that stock's a good value today.

And I imagine that we'll keep doing what we said we're going to do, which is look at strategic opportunities, high ROIC opportunities, things that are dial-movers in our space where we're capable of working. We've got a lot of cash to deploy. We're going to be careful about it. And it's going to be accretive and attractive.

But we're also going to return capital in the form of dividends and stock buybacks. That's a Board policy, and we had a Board meeting yesterday. And I see no reason why we won't continue to opportunistically take advantage of stock buybacks.

Okay. Great. Thank you.

JB Groh, D.A. Davidson.

Looking at the backlog, and you've given us an indication of the exposure to energy there, what's the prospect that because oil prices are down some of the retrofit or the replacement cycle is already captured in some of those orders? Rail company says, we've already got an order for tank, we probably don't need to growth part of it anymore, but can we use those orders that we've already placed as our replacement?

There's some merit to that. It's not simple math. So I think the forces are that there is a backlog.

Is it the right kind of backlog? Again, all those cars are not the same. There's another shoe to drop, which is not just the regulations, but how will the railroads implement their policy in interpreting the regulations?

And they're going to be assertive and aggressive about having safe cars carrying oil first and then ultimately ethanol. So the railroads have always been -- they self-regulate in some respects, and they have the right and the responsibility to conduct safe operations. So I think that is very important to watch.

So I think there is an element of this. But coal loadings being down make it easier. So that's a factor too. And then people are just generally confused and they're looking at all their options, so there's a timing delay.

It's very hard to pinpoint. But you're right that there are large quantities of certain kinds of tank cars being -- have been ordered. If people can accommodate changes on some of the regulations, we're running the tank car of the future. So we're very comfortable about our backlog. I don't know if others are having to come out, production go into storage or not. But ours are not.

And then what do you think -- what's your opinion, sort the prospect of regulations trickling down to other hazardous materials that are nonflammable and getting a second wave here?

Well, you're referring to the kind of spill that took place at Dunsmuir, California about 15 years ago, I guess, or maybe a little longer than that. It contaminated the Sacramento River, and certainly in-unit train service, cars become much more susceptible to breach.

And in any higher speed service, the huge trend has been to faster trains and bigger trains. I think it will trickle down over time as people ponder the awesome risks of damage that can be hazardous to the environment, and we see the environmental lobbies pushing, especially in the West, more protective policies on rivers and watersheds not just on -- but some of the cars are very hazardous to people, just cars that are flammable, but other cars.

And while the safety record is very good, still when an incident that has a low probability of occurring but still occurs, when it occurs it's very serious. So a triggering event is probably what would happen, would cause that, another serious derailment that cause loss of life or contamination of the watershed.

Here in the West, it's a very serious matter. And I think it's likely to occur over time.

Okay. And real quick, could you give us an update on what barge revenue was for the quarter and how things are trending there? I know you had a nice launch.

Nice try. Mark will give you color as we can. (Laughter).

Okay.

JB, this is Lorie. Marine revenue for the quarter was around $20 million. And as Bill said, yes, we had an amazing launch of the Kirby barge. Not sure if I saw you there, but it was pretty incredible for those listening on the call. You should definitely check out that portion of our website. Go to the Marine Barge Section and look at the link for the launching of that Kirby Barge.

The largest barge we have built, 185,000-barrel integrated ton barge operation. We have another Kirby in backlog, and then we have a fairly robust demand.

First barge in a series that large. Probably that would be another tailwind, because we expect marine margins to improve while revenue remains about the same. We expect margins to improve.

Even though our backlog has come down somewhat in that business, we're tracking a pipeline of opportunities that continues to be very robust. That's true also, by the way, in rail however.

Okay. Thanks for the update. (Multiple speakers)

Thank you

Willard Milby, BB&T Capital Markets.

Just wanted to touch on GBW for a second. There's some changes being made here, some facility reductions quarter over quarter. You have 39 facilities with 14-tank capable facilities last quarter, and now 33 facilities with 12-tank capable facilities.

Can you talk a little bit about what changes were made this quarter, and as you gear up to be EPS positive with this venture in 2016 and beyond? And what kind of impact would this GBW have quarterly as we look into beyond 2015?

Great question. I'm going to turn it over to one of our two board members on that joint venture. Mark Rittenbaum, who is an expert on all things GBW.

Right. It's all relative. So in any event, you're correct to indirectly point out that as you look at the equity in unconsolidated -- or earnings in unconsolidated subs, which GBW we do not consolidate, it's not much of a contributor this year. This year we had been more building a platform for the future, investing in the facilities, investing in people and investing in training and safety.

And so as Bill just described in marine, looking at that as a tailwind for 2016 and beyond, we definitely look at GBW as a big tailwind because as we said today, it's pretty much kind of at a breakeven. It consolidated impact to us.

So while we haven't given guidance on that with 38 shops, or approximately. And then with revenues exceeding $300 million, if you just apply any kind of reasonable margin to it, even something comparable to a run rate for our wheels and parts business, which will come back to an annualized run rate for the wheels and parts business and then comparable G&A expense you would see as a percentage of revenue, you would see the GBW could have the potential to meaningfully move the dial in 2016 and beyond.

I would add that, that we've (inaudible) one of our best operating people, Jim Callahan who used to run ARI, the public company, he's known as Mr. Margin. He's a good operating person. He's put some really good building blocks in there, assimilating two cultures, 40 shops.

And he's trimming the sales on some of the less productive and shops that overlap, which is a normal part of improving the margins. So we expect the next six months to see better returns there increasing as whatever occurs in retrofits takes place.

We hope that those who were concerned about retrofit capacity are -- were right to be concerned, and that we will all have a lot of retrofit work to do. So we'll see how that goes.

All right. Thanks. And one more on margin. I know historically you've said that margin improvement's not going to be linear. It all depends on mix and timing and stuff like that. With your visibility, is there anything coming in the next couple quarters that we should be aware of from the manufacturing side of things, line changeovers where we might see a step back from these record margins?

Sure. So I think we mentioned on the last call that in this fourth quarter we've got a couple of changes going on on some tank car lines, but I have to commend our manufacturing folks.

They've done a really great job thus far this year dealing with a variety of ramp-ups, facility changes, additions of lines. So things are going well.

There are, like I said, there are a few changes that are happening in the fourth quarter. We're adding some more complicated tank cars to our product mix. These would be pressure tank cars. So there might be a little bit of headwind there. But overall they've been performing very well and we expect that to continue.

The operating momentum should really continue. And we have very favorable circumstances in our backlog. The backlog, again, is a very big plus for us.

And we set out to do multi-year transactions to achieve that backlog. We should reap the rewards of it.

The other thing that is very important is that we have capability to maneuver. And maneuvering in a market where people have needs is a great opportunity to serve those needs. So we're looking at ways of improving our margins, doing win/win transactions with people.

And we feel it will be a very interesting and productive time for Greenbrier. We expect to be able to maintain our backlog in the present market circumstances. So I think that 2016, we're certainly striving for a stronger year in 2016. Our goals are strong goals.

All right. Thanks for the time.

Steve Barger, KeyBanc Capital Markets.

I know you can't talk about the deal that you walked away from, but can you tell us what multiple you'd be willing to pay for a deal and what the margin profile is so we can start thinking about things that may have crossed your desk?

What I can tell you is we're looking for transactions that have a higher ROIC, that make it a lot of strategic sense in areas we know. And if it's significant deal, immediately accretive. So that's part of our strategy.

Other than that, we had an NDA that's pretty specific, We're going to honor that NDA, and we can't say much more about it.

If you were going to use debt on a deal, what leverage ratio would you be comfortable with? I just say that because you obviously have a ton of liquidity.

Right. So it is good to point that out, Steve. Indeed, we are prepared to use our balance sheet. It doesn't much good to brag about a net funded debt-to-EBITDA of less than 1 to 1 unless we are prepared to deploy it. We've talked about ways of deploying it in the past.

But in terms of what kind of leverage we might use, I think it depends on what type of what type of business it is. And I only get this out as an example. But leasing businesses, which overall we've gone to long-term asset light model, but on a leasing business, leverage up to 4 to 1 is not uncommon.

On a manufacturing business, it would be closer to 2 to 1. And on a services businesses, it would be somewhere in between. So it really depends. Depends overall on the -- and I'm talking about mixes of debt to equity.

So it's really does depend on the type of business, and particularly any kind of transaction. Of course, there's many combinations of cash, debt and equity that we could use to fund the transaction.

Yes. As you looked at deals, are you more focused on buying a business that's running well, or would you buy a fixer-upper?

Well, it's always better to run something that doesn't have any more problems than the normal run-of-the-mill public company. So we're looking at good companies with solid good opportunities of solid strategically for Greenbrier and makes strategic sense.

I think people would prefer to see a company that's running well. Just one last statement. I'm pretty sure that you're not going to find an acquisition as cheap as your own stock. So if you can't find a deal and the market continues to put a single-digit multiple on what has to be hundreds of millions of dollars of cash flow in your backlog, I'd just urge you to really focus on free cash flow conversion, pile it up and take advantage of what is a pretty unique situation.

One of the things we've learned in the last five years is to listen to smart people. And you certainly fit in that category. And it's part of our platform to return cash to shareholders through dividends and to look at opportunistic stock buybacks. And we have the dry powder and a Board recognition of how this can be important over time.

Thanks for the time.

That concludes our call today. We appreciate everyone's interest in Greenbrier and our quarterly results. And as you all know, reach out to myself or -- and we can follow-up on any additional questions. Have a great day.

Thank you.

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