Greenbrier Companies Inc (GBX) 2017 Q3 法說會逐字稿

Hello, and welcome to The Greenbrier Companies Third Quarter of Fiscal Year 2017 Earnings Conference Call.

(Operator Instructions) At the request of 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, Executive Vice President and Chief Financial Officer.

Ms. Tekorius, you may begin.

Thank you, and good morning, everyone, and welcome to our third quarter fiscal 2017 conference call.

On today's call, I'm joined by our Chairman and CEO, Bill Furman.

We'll discuss our results for the quarter as well as provide our outlook for the rest of the fiscal year.

Following our prepared remarks, we'll open up the call for questions.

In addition to the press release issued this morning, which includes supplemental data, additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website.

Matters discussed on today's conference call include forward-looking statements within the meaning of 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 2017 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier.

We continue to produce strong results.

Aggregate gross margins during the quarter were strong at 20.4%.

Highlights for the quarter include adjusted EBITDA of $63.8 million and earnings of $32.8 million or $1.03 per diluted share on third quarter revenues of $439.2 million.

Interest expense associated with our convertible bonds issued in February 2017 had a $0.08 per share impact on the quarter.

General and administrative expense was $42.8 million, a sequential increase driven by the timing of long-term incentive compensation expense.

Similar to past years, this will trend back down in Q4.

As a percentage of revenue, G&A was 9.7%, reflecting the dollar increase on a lower revenue base, which I will discuss in a moment.

We continue to target around 6% of revenue for our core G&A, bearing in mind the impact of short-term or development projects that I've discussed in the past.

Operationally, we recorded deliveries of 2,600 units.

While our production rates on certain lines have decreased modestly since the beginning of the fiscal year, the primary driver of the lower level of deliveries was timing related to lease syndications.

As a reminder, we originate leases for new railcars, which once billed are carried short term on the balance sheet can lease railcars for syndications.

Upon sale, these transactions are reflected in manufacturing revenue and gross margin as well as deliveries.

The timing of syndications was driven by a combination of customer delivery requirements and production scheduling.

We expect the majority of these units to be syndicated in our fiscal fourth quarter.

Our tax rate for the quarter was driven by a combination of discrete items and cumulative adjustments from a slightly reduced expected annual rate, resulting in a $0.12 benefit in the quarter.

As a reminder, last quarter's tax rate was similarly but unfavorably impacted, which created an earnings headwind of approximately $0.09 per share for the second quarter versus the benefit this quarter.

We expect our current annual rate to be about 29% to 30%.

Noncontrolling interest for the quarter was accretive to earnings versus the normal deduction and was a significant shift from the last several quarters.

This was driven by the timing of syndication products at our GIMSA joint venture.

A large proportion of GIMSA's production for the quarter is in leased railcars for syndication to be syndicated in Q4 and into 2018.

Setting aside the GAAP elimination consolidation noise, GIMSA continues to produce railcars safely, efficiently and profitably.

Orders totaled a strong 11,000 units during the quarter valued at $1 billion or an average sales price of approximately $92,000 and reflected a diverse set of car types as well as a 6,000-unit order from Mitsubishi UFJ or MUL.

Order activity excludes 500 units from Greenbrier-Maxion, our Brazilian manufacturing operation, which is not consolidated; and Greenbrier-Astra Rail, which was formed subsequent to quarter end.

While we're pleased with our order activity this quarter, we're cognizant that the market remains competitive, and we believe orders will continue to be nonlinear.

Bill will provide additional color on the significant strategic progress made internationally during his remarks.

Our diversified backlog as of May 31 was 31,000 units with an estimated value of $3.1 billion or an average sales price of $100,000.

Backlog includes approximately 1,000 units related to the formation of Greenbrier-Astra Rail but does not reflect backlog for Greenbrier-Maxion, our Brazilian operation.

We continue to view backlog as a key indicator of future earnings and cash flow generation.

Turning our focus to our business segments.

Quarterly gross margin in our Manufacturing business was 22.7% driven primarily by strong production efficiencies even at lower production rates and a more profitable mix of business.

Wheels & Parts quarterly margin was 8.5%.

Our aftermarkets business continues to experience operational headwinds as volumes and the mix of work continue to be challenged.

This business unit, along with our GBW aftermarkets repair joint venture, remains a strategic part of our integrated model.

Leasing & Services gross margin was 28.7% in Q3.

The margin percent was impacted by lower net interim rent and continued strong externally sourced syndication transactions, which typically have lower gross margin percentages.

Excluding the external syndication activity, gross margin for this segment was 43.6%.

Greenbrier is in a strong financial position, and our balance sheet provides us with significant optionality and flexibility.

We ended the fiscal third quarter with $885 million of liquidity from cash balances and available borrowings on our revolving credit facilities.

As of May 31, our cash balance was $465 million, and net debt continues to be low at $108 million.

We're committed to our balanced approach to capital deployment and best positioning the company towards enhancing long-term shareholder value while continuing to seek and identify opportunities to profitably grow the business within our core set of competencies.

Returning capital to shareholders continues to be a key tenet of our overall strategy, evidenced by the $0.22 quarterly dividend announced today.

The strategic actions we've made, including diversification and prudent balance sheet management, position us well to successfully navigate shifting market conditions and take advantage of our growing presence in international markets.

Based on current production rates and schedules and barring any major economic shift, we're tightening our fiscal '17 guidance for deliveries to be approximately 15,000 to 16,000 units, revenue to be $2.1 billion to $2.3 billion and diluted earnings per share in the range of $3.45 to $3.65, which excludes $0.17 per share of new convertible interest expense.

For the rest of the year, we expect gains on sale to be between $15 million and $20 million, reflecting used equipment activity in our expanded MUL relationship; growth capital expenditures of $80 million with $75 million in proceeds from the sale of leased assets; depreciation and amortization of about $60 million; and again, our annual tax rate is expected to be 29% to 30% based on the geographic mix of earnings; and we expect fiscal 2017 earnings attributable to our GIMSA joint venture or minority interest to be approximately $50 million.

Quarter-to-quarter, this amount will vary, as you, no doubt noticed this quarter, and is based on the timing of syndication of railcars built at that operation.

Due to the timing of the Astra deal closing on June 1, the 2017 guidance has minimal benefit from Greenbrier-Astra Rail in which we'll have an approximate 75% interest.

We still expect the annual accretion to be $0.15 to $0.35 per share on a go-forward annual basis.

And now I'll turn it over to you, Bill.

Thank you, Lorie.

Well, we had a very busy quarter with strong orders and execution on 3 significant strategic deals.

As you know, Greenbrier has a 2-part strategy that we adopted just over 1 year, 1.5 years ago, in light of the current domestic market conditions and the strategy both protects and grows our core North American businesses while we expand our markets internationally in the promising regions for rail transportation.

A major highlight of this quarter was new railcar orders reaching 11,000 units at a time when our markets remain highly competitive.

Our commercial activity during the quarter was punctuated by the landmark multi-year deal with MUL.

This transaction leverages our capabilities in manufacturing, leasing and railcar management services and expands our international focus, creating a strong partnership for international growth as well as domestic growth.

Deals that offer the opportunity for railcar deliveries into 2023 and the realization of more than $1 billion of business over the life of the agreement, plus an exclusive manufacturing relationship with a partner building a very strong fleet in North America, these kinds of deals are not easily won.

I'm very proud of our entire team who helped complete the MUL transaction, especially Mark Rittenbaum, whom many of you know from his past participation on our conference calls when he was CFO.

I'm also pleased by the bottom line results this quarter with strong EPS and our fifth consecutive quarter of aggregate gross margins that exceed 20%.

Lastly, in the North American market, setting aside the MUL transaction, we received orders for 5,000 railcars, which is a very good quarter, indeed, compared to industry expectations, increasing our market share, we believe, during the quarter.

Our backlog of 31,000 railcars provides a good base of business for manufacturing facilities and helps our visibility as we approach fiscal 2018.

Our backlog spans almost all railcar types and is international in scope as well as domestic.

It is also high quality in the sense that it is comprised of orders from long-time customers who understand that we don't sell options on production capacity and that placing an order is a firm commitment to lock up space and to gain benefit.

We've had an excellent record of holding our backlog and our orders, once taken, in place.

As Lorie explained during her comments, our balance sheet provides us with considerable optionality and flexibility.

This is a testament to the hard work that Lorie, Justin Roberts, Mark Rittenbaum have done over the past 7 years.

Our ability to generate free cash flow should continue to strengthen our balance sheet.

These things allow us to navigate shifting market conditions and to take advantage of our growing presence in our international markets and to improve market share in our domestic markets.

We are pleased by some of the early benefits produced by our 2-part strategy.

However, our real progress with the strategy will be revealed by achievements that occur year-over-year and in years to come, rather than merely quarter-over-quarter.

We're confident we have a formula for growth that secures Greenbrier's future as a leading provider and a designer of transportation equipment, providing services to customers and problem-solving to customers around the world.

Our strategy also depends on having great people oversee it.

That's why I'm particularly pleased to announce today, a separate announcement, that our board has added 2 new independent directors.

We've increased our board size to 9 members, including me.

The board now contains -- is comprised of 8 fully independent directors.

Wanda Felton and Dave Starling are both great additions to our board with substantial international experience in financial, in the case of Ms. Felton; and railroad CEO with extensive operating experience in Asia and in Latin America and in the north, south corridors with Kansas City Southern in the case of Mr. Starling.

We're very fortunate to add these 2 new directors to our Board of Directors.

Turning to international operations.

We have now manufacturing operations on 3 continents and a strong presence in commercial activities on 4 continents.

We believe we are well positioned in the world's busiest and most rapidly expanding rail transportation regions.

In the beginning of our third quarter, we announced the successful completion of our investment in Brazil by increasing Greenbrier's direct ownership position in Greenbrier-Maxion from 19.5% to 60%.

We also increased our business interest in the castings joint venture in Brazil with Amsted and Maxion.

We can leverage Brazil's geographic position to serve the rest of Latin America and to link it with Mexico and then potentially export to other regions out of Latin America and Brazil.

In Europe, the formation of Greenbrier-Astra Rail closed on June 1. Greenbrier-Astra Rail is Europe's largest end-to-end freight car railcar manufacturing, engineering and repair business.

It reaches markets throughout Europe, Eurasia and the Gulf Cooperative Council -- the Gulf Cooperation Council.

Greenbrier's equity position in Greenbrier-Astra Rail is, as you know, 75% will be part of Greenbrier's global manufacturing organization and system.

Industry estimates indicate a high replacement demand for freight railcars in the Western European rail market where the typical freight railcar has been in service for longer than 25 years.

Demand in material markets like East -- Western Europe, coupled with opportunities in nearby emerging markets, position Greenbrier-Astra Rail, coupled with our global manufacturing system, including -- depending on currencies, in Brazil and Mexico, it positions Greenbrier in total for real success.

Turning to the economy in North America and our business outlook.

Sentiment has improved since the beginning of the year.

Unforeseen developments in our markets are always possible, but I remind everyone that these can be positive as well as negative.

And we believe we're prepared for whatever changes may occur.

Steady improvement in railcar loadings across commodity categories during the last few months as well as decreasing rail velocity are both positive indicators for the near-term demand environment.

Over the past -- over the next few years, we expect to see demand driven primarily by replacement of the older portions of the fleet as well as growth in petrochemical and plastics traffic, while during the current economy and despite some reports, automotive will remain strong.

We are optimistic and feel confident that the strategic actions we've taken, including international diversification and prudent balance sheet management, position us well to successfully navigate changing market conditions.

Indeed, we can now engineer any type of car and deliver any type of car in North America, Latin America, South America, Europe, Eastern Europe, Eurasia.

We have the engineering capabilities to do all of that.

In summary, we're far stronger today, both operationally and financially, than we have been in previous cycles.

Our transformation continues as we continue to forge new partnerships and expand on existing relationships like the transactions we finalized this quarter with MUL, Greenbrier-Maxion and Astra Rail.

Looking ahead, Greenbrier is well positioned to pursue growth.

We will maintain our focus on North American rail markets by investing in product enhancements and efficiency developments while preserving and protecting our core competencies.

We will focus on profitability, cash flow and developing human capital for the future.

We will continue to actively seek opportunities to diversify and access international and domestic markets to expand the reach of our integrated business model using our strong flexible balance sheet and our financial capabilities developed through many, many years in the leasing and financial services business.

With manufacturing operations on 3 continents, a presence on 4 continents, solid railcar backlog, strong cash flows and a stable balance sheet, Greenbrier continues to deliver long-term value for its shareholders, and we believe we will be able to do so in the future.

Now I'll turn it back to you, Lorie.

Thank you, Bill.

And operator, we'll go ahead and open it up for questions.

(Operator Instructions) Our first question will be from the line of Justin Long from Stephens Company.

So the first question I had was on the guidance.

It looks like in the fourth quarter, you're expecting deliveries to essentially double sequentially, but the midpoint of the EPS guidance or the implied guidance suggests it will see a cut, roughly half in terms of EPS on a sequential basis.

I think the midpoint of the guidance implied something around $0.47 when you include the interest on the convert.

So I was just wondering if you could talk about any abnormal cost items in the fourth quarter that are driving this margin pressure, or is it purely just mix and pricing that's more reflective of a competitive environment that we're seeing today.

That's a great question, Justin, and it's a combination of a number of things.

You're absolutely right.

We do expect the fourth quarter to be strong when it comes to deliveries.

We do expect our manufacturing operations to face a bit of headwind as they transition to more commoditized car types and a bit more competitive pricing on those orders.

The other thing that I would point out kind of as the offset to what happened in the third quarter is we do expect more syndication and delivery activity out of our GIMSA joint venture.

And as you know, that will become a reduction when it comes to the EPS calculation.

So again, strong performance from an operational perspective, but the sharing of half of those operations with our GIMSA joint venture partner is a headwind to the EPS number.

Justin, I'd just like to supplement that by saying that we try to be realistic and prudent in these -- setting these expectations.

Sequentially, in the last 3 quarters, we have overachieved our expectations.

So we still have some shoes to drop in the quarter that could be positive.

So we'll see how this goes, but that's the guidance.

Yes, a slight conservative comp, aggressive comp.

Well, I would say more like a realistic comp, in my case, but certainly (inaudible).

Well, that's helpful.

And maybe kind of following up on that.

When you look at manufacturing margins, specifically, is there any color you can give or provide on what you're baking in for the fourth quarter?

And then as we get into next year, based on what you already have locked in for delivery in the backlog, do you expect manufacturing margins to rebound from what we're -- you're expecting to see in the fourth quarter?

I think to tack on to what Bill has said, our manufacturing colleagues continue to amaze and astound us with their abilities.

I think I've said before that those guys wake up every single day not being satisfied with what they did the day before and will continue to drive efficiencies.

We are shifting again to a more competitive market.

So there will be a mix impact of having maybe lower pricing, lower margin on certain car types but still having robust margins on other car types.

I'm not prepared to give specific guidance for the fourth quarter for a particular segment nor are we prepared to give guidance for 2018.

But with the backlog that we have and the team that we have, we're very excited about what our outlook looks like, and we don't expect some sort of draconian shift as we move into 2018.

At our board meeting this week, Justin, we went through our backlog and momentum into 2018, and I think the board was pleased with the progress we've made.

We have a fair amount of bookings in 2018.

This is an industry, which is a long-distance run.

We're trying to position the company for the future.

We're trying to build cash flows out into the next recovery, and we have to compete in the marketplace that we see.

Sometimes, we're affected by industry pundits who can declare a defeat when the industry is actually pretty healthy.

The railroad balance sheets are as healthy as they've ever been.

They've been pausing, but the fundamentals, as we spoke to in our press release with velocity and increased loadings, are a good harbinger for stronger margin pickup, if not in '18, then beyond that period of time in the domestic markets.

Great.

And just quickly, before I pass it on.

I think last quarter, you talked about 10,000 to 12,000 units being locked into the backlog for delivery in fiscal 2018.

Is there any update to that number?

I -- we are in the midst of working on our 2018 planning process.

I'd say we're -- obviously, with the kind of order activity we've had this quarter, we're nearing the top end of that guidance but nothing further specific to provide.

Our next question will be from the line of Matt Elkott from Cowen and Company.

I want to talk about orders, if I may.

The 5,000 orders, organic orders, that you guys got from your traditional American and -- North American and European businesses, can you talk about the drivers?

What drove those orders?

What types of railcars they were?

And what portion of that came from Europe versus North America?

Well, as indicated in our press release, we had 1,000 international orders, 500 of which were not included in our order book because we wanted to show comparability to past periods, and we're not consolidating Greenbrier-Maxion in Brazil.

The orders were diverse.

The larger portions of those were -- for Q3 were medium-covered hoppers, tank cars, auto and auto racks, flats, nonintermodal boxcars and a diverse mix, principally in automotive and box-type wagons in Europe.

So it's a diversified order base, and I think I've answered the question about the European mix.

Yes, Matt, I would say that as we've talked about several times over the last several quarters, with the expansion of our product mix over the last couple of years, it's allowed us to really broadly participate in market demand.

And there wasn't any particular standout in the quarter.

It was a really diverse mix of orders that make up that 5,000.

Got it.

And does it feel to you guys -- because this is a significant jump from what we've seen in the last 2 years.

I think last quarter, you had 700.

And the quarter before, you had 2,400.

We haven't seen this level of orders since, I think, third fiscal quarter 2015.

Does it feel to you guys like this may signal some sort of an inflection point?

Or is it just the normal lumpiness of the industry?

Well, which one of us would you like to answer the question?

Maybe you can talk it out and give us a hybrid answer, Bill and Lorie.

All right.

Why don't you give the official answer, Lorie?

Well, I would actually say that I think our commercial folks have had an amazing quarter.

They've been working very diligently out there in the market.

I would say that just as we've talked about the manufacturing folks upping the game with having improved manufacturing margins and efficiencies, that kind of spurs all of us across the company to do better and better.

So I think the commercial folks just knocked it out of the park this quarter.

Yes, I guess, a metrically driven way of answering that is looking at our pipeline of orders that we're tracking and no doubt, the industry is tracking, and that pipeline seems to be going up.

I don't think that one should read into this in any of our comments that we think that this is an extraordinary thing, necessarily.

It will be interesting to see how others in the space are doing when we look at aggregate orders next month because of -- we end our quarter 1 month before the fiscal -- or the calendar quarterly reports come out.

But I expect we got a fair amount of the orders that were awarded domestically.

Why?

It's not just the commercial team.

It's excellence in engineering, in quality.

We have a robust program to take costs out of our car types and to improve the car types, so they're more serviceable and more useful to our customers.

And I think this is all paying off.

Lastly, I'd just say that the synergy, the model we have, not dissimilar to Trinity on the leasing side, this really differentiates and allows a lot better maneuvering.

And when we couple that with the repair and wheel business that we have, we can do transactions and add service packages that others simply can't come close to.

And the only exception probably in the domestic space being Trinity.

I was just trying to kind of gauge how much of this sharp increase in orders may have been driven by overall market strength and market share gain potentially on your part because I know you guys tend to gain market share in a sluggish market.

So I guess it looks like it may be a combination of the 2.

I think that's fair.

Our next question will be from the line of Ari Rosa from Bank of America.

So I just wanted to start on the international opportunity.

It seems like from the slides that you guys have distributed, in Western Europe, the order levels are much lower, and yet the fleet age is also considerably higher than what it seems to be in North America.

So was hoping you could just discuss, looking out kind of over the next 5, 10 years, do you expect that order level to trend up?

And what are the implications of that older fleet age?

And maybe where you expect the demand to come from in terms of the car types that you're seeing?

Well, there're some really interesting demographic changes that are going on in the Western European market.

I think it's fair to characterize that market as a mature market.

But it's quite likely that we will see 3% to 5% growth in activity there, and maybe the market growing as -- by as much as 30% annually in terms of car conversion.

You've got 2 or 3 demographic forces going on.

The state-owned railroads, the railroads that own most of the cars have a much older demographic profile than many of the leasing companies and others who've been investing in recent years in cars.

The second thing that is occurring that will be difficult to predict how this will work out is China is amazing.

The investment strategy in the One Belt, One Road program that essentially is enhancing efficiency from the Chinese border in through Eurasia.

And they're putting in a tremendous amount of investment, which will improve the infrastructure and certainly will benefit Chinese trade and probably supply chain, but it will also benefit those of us who see improved infrastructure.

So much of what we see as the opportunity in Western Europe is to consolidate in a solid market there with a -- to be the largest freight car builder and engineer, but also to export into Eurasia and to export into the GCC where there will be a lot of opportunities.

And by Eurasia, I mean, Turkey; potentially longer term, the Ukraine; and certainly over time, in the next 5 years, Saudi Arabia; and the Gulf Cooperative Council will be investing in the -- in their infrastructure.

And this is going to be a very positive story for our European operation that can do both.

If you can handle the Western European market and export out of there in collaborative transactions with local partners, this can be a very good recipe for success.

But it's a little longer-distance run than again, quarter-to-quarter.

We expect to expand the scale of our operations and go where the orders are.

If there's business over there, we're well equipped to get that business.

Great.

That's a really comprehensive response.

I appreciate it.

Just really quickly, so for my second question, I'll ask about the margin issue because kind of going back to what Justin was talking about, it seems like the margins have continued to be really strong despite the fact that the macro environment has been a little bit weak in terms of new orders.

Is there a way to quantify how much of the improvement in margins is driven by cost cutting versus car types that are being delivered and just that -- those car types maybe have a higher price point?

Because it does seem like if we look at fourth quarter and just kind of do the math on the deliveries, it seems like that falls off quite a bit.

So I'm just trying to kind of disaggregate between cost cutting and what kind of a floor it might look like on the margin side.

Sure.

I'll try, and I'm sure Bill will have some supplementary stuff.

I would guess, I would encourage you as you're looking at your model to not get too caught up in just the margin being your differentiator as to how you get to the EPS, but don't forget about minority interest and the significant impact that can have as you get from deliveries down to EPS.

That being said, I don't think that we have any particular way to quantify the benefits that we've enjoyed in manufacturing, how much of that comes from cost cutting versus the various car types.

That's, I would guess, one of the more complicating parts of having a broader product mix is it makes it more difficult to aggregate or to disaggregate exactly where that benefit is coming from.

We know that we're seeing solid margins across the product types that we're building right now.

As I've said before, the manufacturing folks continue to focus on driving costs out of the system, becoming more efficient while maintaining safety.

So I don't think there's any way that we can separate it, 3 basis points associated with cost containment and 2 basis points associated with more or less tank cars.

As a matter of fact, as we're -- not surprisingly, we're probably delivering fewer tank cars today than we were some quarters ago.

So again, we've been able to maintain margins even as we go to more commoditized car types.

Yes, and I think just simplifying the drivers, pricing is, of course, very important.

And as older backlog is worked off and market conditions, as industry observers have observed, become more competitive, pricing is a factor.

However, equally important is the type of car and the mix that is being run, the quantity of runs and the continuity of runs.

I would characterize the railcar business as a much more exciting business than most people recognize, very much like an aerial dogfight where things are swarming around and you have to queue and load multiple plants.

Its plants with multiple lines, as many as 12 to 15 lines and the queuing of these are an art, not a science.

So I think if you can have continuous production runs, if you can have space available almost instantly in a market like this, if you're flexible and nimble, that does go a long way, and that's all commercial skill sets and competitive information.

But we are -- we have been successful in sustaining longer production runs than others.

We use our leasing company to bridge opportunities, and it's not just simply a matter of all this pumps down in margin.

Overhead absorption is a big factor in pricing, but volume really does matter, too.

Okay, great.

That's a really comprehensive answer.

I appreciate it.

Hadn't heard the manufacturing process referred to as an aerial dogfight before, so I appreciate that analogy.

Is it fair to say...

It's the selling.

It's not really the manufacturing, it's the selling of the cars that are more like the dogfight.

Got it.

Got it.

Is it fair to say then that more than kind of margin deterioration, what we should be looking for is a step-up in minority interest?

Is that fair?

Yes, I think that is fair, Ari.

Our next question will be from the line of Steve Barger from KeyBanc Capital Markets.

On the last couple of calls, you've indicated the 2018 results would look similar to 2017.

Is that still the way you're thinking about it?

I would say -- at this point, I would say that we're encouraged that there are further opportunities.

Now that Astra Rail has closed, we're excited about what that could become.

Again, as we continue to post solid manufacturing margins, we're excited about that could -- what that could bode for 2018.

We've got a number of moving parts that give us more comfort, I would say, going into 2018.

But we always like to -- there's always the but, right?

It is a competitive marketplace, and so I would say we're balanced.

I would say '18 like '17 with potential upside.

Yes, the only thing I'd add to that is for a time, The Street was anticipating a real bump-down, and I think that reflected in the share valuation from 2017 and really kind of a gloomy outlook overall.

And certainly, if you read some of the information that has been out there for the past 6 months and comments, you can interpret the market as softer, more competitive with total orders looking a lot different than they were a couple of years ago.

However, we haven't -- we're not giving guidance yet for 2018.

We continue to think that there's a cutout between our own expectation and what The Street expects and its more gloomy outlook, fueled not by necessarily our view of the market, but by the view, collective view, of some of the statistical observers.

Presumably buttressed by some of the international investments that you've made that give you more visibility into the forward outlook than you had previously?

Yes.

And so to that point, Bill, you talked about the manufacturing footprint in Europe and Brazil, and you talked about exporting and being positioned to reach the world's busiest rail markets.

Can you talk more specifically about how big the opportunities in the GCC or other areas in emerging markets could be?

Or just how should we think about that overall?

I think the GCC is at a jump ball kind of a thing.

We just had some recent changes with the deputy -- former Deputy Crown Prince now being designated the Crown Prince.

This should be positive for the economy in the context of the 2030 plan, and it should be positive for the region, positive for U.S. interests.

Having said that, the market is a fairly thin market.

It's one of several that we're looking at.

We're having success on the project that we have in [Shala].

We need -- we continue to have the ability to have that.

I think we're well positioned in that market, but it's not a huge market like the United States.

It's something that will be coming to fruition over 5 years.

I think what's more exciting about the international picture is the potential in other areas that are even larger, the Silk Road, the Turkish market, some of the things that are happening in logistics where as much as 7 to 10 days of transit time are being taken out of land bridge movements through -- and this capital investment that China is going to put in and linking China and the Silk Road to Europe.

And I know this is going to play out over a long period of time, but do you have an estimate for how much rolling stock those projects would need over the 10-year period or whatever it might be?

We might be able to give more visibility, I hope you can excuse us.

This quarter, we had a ton of closings and a lot of activity.

We're trying to take a deep breath and get guidance prepared for 2018 by the next conference call and beyond.

I think we'll be able to give more color on our longer-term goals and objectives in the international business.

At present, as we've said before, it's still not a huge part of our backlog or our business, but we do look for it to be gaining momentum year-over-year.

And again, it's a little bit of a longer-term gain, which hit -- should hit us 2019, 2020, 2021.

Our next question will be from the line of Bascome Majors from Susquehanna.

Someone earlier asked about the car-type color with some of the orders that you received this quarter.

I was curious if you could give us a little more color on the customer type and who's actually in the market here.

Broadly speaking, if we look at the 5,000-or-so cars that weren't part of the MUL order, are you seeing other, what we would call, maybe early-cycle strategic positions being taken by operating lessors in your backlog yet?

And if not, are you seeing these kinds of bids or inquiries come into the marketplace?

And could we see that start to happen in maybe more size in the second half of the year?

Yes.

I would recommend maybe a quick read of some of the commentary from analysts in The Street, relating to the tone or the tenor of the marketplace.

There seems to be a collective agreement that things are getting a little bit better driven by railroad loadings and just the tenor of some of the conversations.

For example, Cowen and Company put out a fairly -- a good reflection on the tone that they're picking up through their excellent research that they do.

In terms of customer type, it's across the board.

We have strong leasing partners that we favor.

We have 1, 2, 3, 4, 5, 6 big railroads in the book of orders for this quarter.

We have some from -- some actual cars that are converting from the backlog numbers from MUL, just the normal course, beyond -- above and beyond the multi-year deal.

So we have -- and a number of shippers.

It's nothing extraordinary, I'd say.

But it's a broad mix much like the car types.

The big difference that has happened in Greenbrier in the last 5 years is that we have emerged from being a specialist builder with essentially a couple of factories in Oregon and in Mexico and earlier, in Nova Scotia, building just a few car types to building almost any car type, with the exception of coal cars.

And coal cars, that market is not doomed, but it's down.

And if we were going to have to have a car type that we're not participating in today, that's a good one not to be participating in.

Maybe to just narrow the focus of the question a little bit, when you look at the kind of inquiries you're getting today, do you expect, from your conversation with the customers, not with what me and my brethren are saying.

But do you expect to see more strategic positions or longer-term, multi-year positions being taken by the operating leasing companies as we look over the next, call it, 2 to 4 quarters?

No.

You know what I think is they're working off the commitments that they've made, and they're trying to balance their own fleets.

I think they are -- these companies are very professional.

They're not going to load up on equipment until they see the rates and the picture more clearly.

But clearly, there is a lot of tactically driven buying right now because pricing has been very competitive, and I think people are taking advantage of that.

They're seeing rates in isolated and actually across the broader base going up.

That's what I was referring to in some of the commentary.

As rates -- lease rates recover in some selected car types, as velocity falls, I think some of these companies, especially shippers, are taking advantage in placing orders in these more favorable conditions.

And Lorie, just to follow up on I think it was Steve's question earlier.

I think the word you used last quarter to describe what you hoped you could put up next year was " flattish." I know you talked about some of the puts and takes, but generally more optimism today than you had then.

Is that a fair assumption that potential for flattish and maybe even a little higher, is that where you were trying to kind of poke at earlier?

Or am I getting too precise here?

I think in the absence of specific guidance, yes, I think that's a fair assessment, flattish and with a number of areas where we see that there's potential for upside.

But we're still cooking dinner.

Well -- and I'm a little more optimistic, but I tend to be optimistic quarter-over-quarter.

So I don't want to contradict Lorie, but I think things are looking a lot better than they were a couple of years ago.

If we want to worry about things, there're plenty of things to worry about.

You can worry about a great recession, or you can worry about the banking crisis, North Korea.

There's plenty of things for us to worry about, but the things that we can control and participate in, all those vectors are looking a lot better than they did 3 quarters ago, 2 quarters ago, at least as far as I'm concerned.

Our next question will be from the line of Allison Poliniak from Wells Fargo.

Talking about the pricing environment, you mentioned it's competitive.

But do you feel that just given some of the stability and the inquiries coming in, that at least it's stabilizing at this point?

Yes, I would say that's a good characterization.

It's definitely very car-type specific, but I would say overall, it's stabilizing.

There're still some areas that are stronger and others that are a little bit weaker.

The competition has been tough.

It's tough on those of the peer group that is not broadly diversified, and the deals are very creative.

And so there's a real advantage to having a broad product mix and a leasing fleet.

We're seeing that kind of transaction really get put in play.

We're not winning all of those.

We're taking passes on some because our backlog is -- backlog works against us in some ways when we have a better backlog than our peers.

Got it.

And -- but the color that you gave on the European market is really good, so thank you for that.

Could you talk a little bit about the competitive environment over there?

I think there are fewer builders.

How does it look?

What's your share look like over there?

And what do you expect it to be?

Again, Allison, I prefer to give more color on that.

We just recently got all the antitrust approvals that we needed over there from 3 or 4 countries.

And we certainly increased, with this Astra deal, our overall market share.

In the past, there have been 3 premier car-building companies.

There are a number of car builders, but the big 3 have all been in Central or Eastern Europe.

Our factories are in Poland with 2 significant factories.

The Astra factories are in Romania with German management.

It was the German management that we were looking for as much as anything else in their customer base.

They also didn't have an overlap in their design.

This brings a much stronger design portfolio.

So the 2 distinctive things are we have a much larger market share than -- we have consolidated 2 of the big 3. We have 1 competitor that's broad spectrum, that's Astra (inaudible) in Slovakia.

So I think that for the base Western European business, that's a competitive situation.

We're stronger in 2 ways because there are 2 larger builders now, of which we're the largest.

And more importantly, we have a remarkable design capability and a broad -- much broader product mix.

Our next question will be from the line of Matt Brooklier from Buckingham.

Of the orders that were received in the quarter, can you talk to how many of those orders were small-cube covered hoppers?

And specifically, are any of those orders for the sand market?

That seems like it's the only market right now that really has any momentum.

But I'm just trying to get a feel for -- did you take any sand car orders?

And then maybe talk to what's in the backlog at this point.

I don't think we had any sand car orders.

We did -- I think we said something about it on the last call.

We renegotiated 1 sand car deal very attractively, but we are anticipating and continuing to compete in that market.

And there are some transactions, as you say, going down in that market.

It wouldn't -- it didn't occur in our quarter, though.

Okay, that's helpful.

And then maybe just talk to -- my second question, talk to the types of customers that you received orders from in the quarter.

And also talk to maybe -- were there any like lumpy orders outside of MUL that you received or that are maybe longer term in nature?

Sure.

And just following up on that, from the, "Were there any other significant orders outside of MUL," I'd say no.

It is true the other 5,000 is a broad smattering of both customers and car types.

So it's a great diversified mix.

I think Bill mentioned earlier that the customers that placed orders with us this quarter, mix of railroads, shippers and other leasing companies and you get a broad mix of car types, some intermodals, some nonintermodal flat cars, automotive, boxcars, a variety of other tank cars.

There's not a lot of lumpiness, say, there's just a big broad mix of car types in various areas continuing the runs that we've got.

Probably, the most interesting thing about it is that we were able to sustain the lines that we have and keep adding to the efficiency of those lines by adding production in each case.

At this time, speakers, there are no questions in queue.

You may proceed, ma'am.

Thank you, everyone, for joining us on our call today.

We look forward to following up with some of you afterward and hope everyone has a great long weekend.

Thank you, speakers, and that concludes today's conference.

Thank you for joining, everyone.

You may now disconnect.