Greenbrier Companies Inc (GBX) 2019 Q1 法說會逐字稿

Hello, and welcome to The Greenbrier Companies First Quarter of Fiscal Year 2019 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 Mr. Justin Roberts, Vice President and Treasurer.

Mr. Roberts, you may begin.

Thank you, Rosie.

Good morning, everyone, and welcome to our first quarter of fiscal 2019 conference call.

On today's call, I'm joined by Greenbrier's Chairman and CEO, Bill Furman; Lorie Tekorius, Executive Vice President and Chief Operating Officer; and Adrian Downes, Senior Vice President and acting Chief Financial Officer.

Today, they will discuss the results for the quarter and provide an outlook for Greenbrier's business in fiscal 2019.

Following our introductory remarks, we will 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 the slide presentation on our website.

Matters discussed on today's conference call include forward-looking statements within the meanings of the -- within the meaning of the Private Securities Litigation Reform Act of 1995.

Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2019 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

Over the last several months, we have met with several of our shareholders, large and small.

We always appreciate the opportunity to meet and receive your input.

Your feedback provides useful direction as we manage Greenbrier's business in the short and long term.

In 2019, we remain committed to active shareholder engagement and full transparency.

Thank you for your continued support of Greenbrier.

And now, I'll turn the call over to my colleagues.

Bill, take it away.

Thank you, Justin.

Good morning, and happy new year.

Greenbrier's fiscal 2019 has begun well, and we're encouraged by this strong start.

Our first quarter revenue, EBITDA and EPS all exceeded strict consensus estimates and our own -- consistent with guidance that we have provided for the year.

Having completed the strong first quarter, the rest of fiscal 2019 looks promising.

We expect railcar deliveries to gain momentum during and toward the second half of the year.

As many of you know, on this call, Lorie, Docarius and Adrian Downes assumed new responsibilities as part of our talent pipeline leg of our strategy in August of last year.

This morning, I will begin by discussing the performance of our business in the current conditions we see in the market.

Lorie will provide additional insights into the market on the railroad side and an operational review, and Adrian will cover the details of this quarter's results.

During the quarter, we delivered nearly 4,500 railcar units and received total orders for approximately 5,400 units.

This is up about 70% from our order total of 3,200 units for the first quarter last year, which highlights our momentum and provides a basis for confidence about fiscal 2019.

Orders in the first quarter were for a broad range of railcar types, including double stack, intermodal cars, automotive carrying railcars and tank cars.

Notably, 20% of all of our new railcar orders in the first quarter were received from markets outside North America, reinforcing the importance of international markets to Greenbrier.

Order activity remains robust.

After quarter end, we received additional orders for approximately 1,000 railcar units.

We are booking significant orders into fiscal 2020.

Opportunities in -- to build and deliver new railcars internationally continues to emerge, as Lorie will touch on in a few minutes.

But we do expect international growth to come from Europe or -- and Brazil as the year progresses and over time from Saudi Arabia and the other nations of the Gulf Cooperation Council and Eurasia.

Greenbrier's diversified backlog as of November 30 totaled 27,500 units, up slightly sequentially, with an estimated value of $2.7 billion.

With over 90% of our fiscal 2019 production plan already booked with firm orders, manufacturing execution will be critical to Greenbrier as we strive to achieve our performance targets for the year.

We are confident that our global manufacturing system and our manufacturing leaders and highly skilled workforce will get the job done.

U.S. economy is very good.

Fiscal policy is expansionary and economic fundamentals are strong.

Just last night, a group of economists suggested that inflation rates might be reduced due to reduced oil prices.

If that happens, it's likely that the Fed will ease off on its monetary interest rate policy, and that might give more confidence to the market.

So the economy added 312,000 jobs in December, significantly exceeding expectations.

Despite all this and decent times in the United States, stock markets have become abnormally volatile after an extended period of con.

Our stock has not been an exception to this, and we are quite conscious of shareholder value.

We believe the contributing factors include the partial federal government shutdown, potentially worsening trade conflicts and other forces.

In recent weeks, as I've said, we have been affected.

We hope that all of this will give consideration to the fundamentals of our business, and we continue to affirm that from the tea leaves we can read particularly in North America and in our international businesses, the future for the next several years looks strong.

Greenbrier continues to advance a 4-pillar strategy: one, to grow and maintain its core in North American markets; two, to expand in international railcar markets, both of these at scale; three, to aggressively extend our talent base through a robust talent pipeline; and four, to efficiently deploy capital to grow at scale in new and existing markets.

As our success during the first quarter demonstrates, this strategy is propelling Greenbrier toward a year of strong performance and operational success.

And now for further comments on our operation and for the comments on our quarter, I will turn this over to Lorie, who will then introduce Justin -- I'm sorry, Adrian.

Lorie?

Thank you, Bill, and good morning, everyone.

And again, welcome to the new year.

We appreciate your participation, and we are definitely looking forward to an exciting 2019.

I'll briefly provide some more detail on our operating environment before Adrian will address the financial details of the quarter and our outlook.

It's a great time to discuss our operations because our integrated business model continues to perform very well.

Our commercial team is successfully executing the strategy that Bill just reviewed, particularly protecting and enhancing our core North American markets.

Commercial is working very closely with our engineering and manufacturing groups to incorporate customer feedback into our product offerings, while capitalizing on market trends to develop and launch innovative products, such as cutting-edge grain hoppers, specialty tank cars, and automotive car carriers.

In addition to our healthy backlog in order activity, the rail industry in North America continues to see positive leading indicators for demand.

Total U.S. railcar traffic, including intermodal, approached 26 million car loads for the first 50 weeks of 2018, up 3.6% from 2017 levels according to AAR.

Intermodal volumes set a new annual record in 2018 and other strong rail loaded commodities in 2018 included petroleum products and chemicals.

On the railroad operating side, despite a small uptick in December, railcar storage levels have consistently trended downwards since peaking in June 2016.

Demand for a broad array of car types is strong and the railcar industry analyst group, FTR, forecast total industry deliveries of 60,350 units in 2019, 20% above 2018.

They also forecast continued growth in deliveries in 2020 to the -- over 64,000 units.

Now moving to our overseas markets.

Brazil has been a challenging environment, but the economy is trending the right direction.

Our operations there are improving are poised to be responsive when rail demand picks up with the government approval of rail concessions.

In Europe, the railcar market is strong.

We benefit from a backlog that provides more than a year of visibility, and we're in discussions with key customers for long-term orders.

We continue to pursue operational improvements at our Romanian facilities and further integration with our Polish facilities.

All of these actions are expected to boost overall profitability.

Opportunities continue to emerge from our first railcar order received in Saudi Arabia in 2015.

We see great promise in the rail markets across the nations of the Gulf Cooperation Council.

Presently, we're formalizing the details of our new joint venture in Saudi Arabia that we first announced in October.

In November, King Salman inaugurated Phase 2 of Al-Shamal Industrial City, which is set to become one of the largest producers of phosphate in the world.

The Kingdom has 7% of the world's reserves of phosphate, and this bodes very well for railcar demand in the region.

As Bill mentioned, we continue our thoughtful approach to capital deployment to achieve growth at scale.

This supports our strategy, which in addition to growing at scale, includes maintaining our position in core North American markets, while expanding internationally.

Internally, our investments prioritize the expansion of our talent base through a robust talent pipeline, and we believe the current business climate will reward investments in our operations and in our people, and these wise investments will position the company for future growth and profitability.

Our strategy is helping us deliver on our goals.

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

Our backlog gives us clear visibility through 2019 and into 2020.

And with this visibility, we're able to affirm our financial guidance announced last quarter.

We have a lot of hard work ahead to accomplish our goals for the year, but I have confidence in our strong creative teams and continue to be excited about what the future holds for Greenbrier.

Adrian, I'll turn it over to you.

Thank you, Lorie, and good morning, everyone.

Quarterly financial information and metrics are available in the press release and supplemental slides on our website.

I'll provide a few highlights on the quarter and then provide additional information on our FY 2019 guidance.

Highlights for the first quarter include adjusted EBITDA of $57.6 million, net earnings of $18 million or $0.54 per share on revenue of $604.5 million.

Over 20% of our 4,500 units delivered were outside the North American market.

Orders in the first quarter totaled 5,400 railcar units, valued at $560 million, with over 20% of orders from international activity.

Orders continue to be broad-based across a variety of railcar types and customers.

Aggregate gross margin of 12% was in line with our guidance provided in October.

As a reminder, margins in the first half will be in the low double digits impacted by the combination of a more general-purpose product mix, the competitive pricing environments when the orders were taken and the timing of syndication activity.

Margins will expand to the mid-teens over the course of the year as an improving product mix, including increased levels of syndication activity, the benefit of higher production rates and longer, uninterrupted production runs take hold.

We continue to be focused on growing the business and believe our balance sheet, strength and flexibility, including cash balances that exceed $460 million, position us well to support our strategic objective to grow at scale.

We remain confident in our capital allocation strategy that emphasizes cash flow generation and return on capital employees.

This approach will continue to create long-term shareholder value, supported by our history of steady dividend increases over the last several years.

The $0.25 per share quarterly dividend announced today is our 19th consecutive quarterly dividend.

Based on current business results, we are affirming our fiscal 2019 guidance.

Deliveries to be approximately 24,000 to 26,000 units, which includes about 2,000 units from Greenbrier-Maxion in Brazil.

Revenue will exceed $3 billion and diluted earnings per share of $4.20 to $4.40.

We continue to see about 2/3 of Greenbrier's deliveries and about 80% of our earnings in the second half of 2019.

We have high confidence in this guidance we are affirming today because more than 90% of our fiscal 2019 production is in backlog.

Very rarely in our history have we had this kind of visibility this early in the year, meaning the risks to our guidance are more operational in nature versus market-driven.

Further for 2019, we expect operating cash flow to be at least $250 million, as can be expected given the earning's trajectory in our fiscal year, the first half of the year will be characterized by working capital build, including railcars' syndication activity to support higher business activity levels in the back half of the year.

G&A expense of $205 million to $210 million, which includes the return of the repair business.

We will continue to rebalance our lease fleet and expect gains on sale of about $40 million on the $120 million of proceeds from these sales.

Similar to 2018, we intend to continue to add to our fleet, with expected investments of about $100 million.

Capital expenditures of $105 million in manufacturing and wheels, repair & parts increased approximately $15 million from our prior guidance, reflecting additional investments to support production ramp-up in the back half of 2019 and to provide long-term enhancements to our existing manufacturing facilities.

Combined with our fleet activity, our net capital expenditures will be about $75 million.

Depreciation and amortization is expected to be $80 million to $85 million, and earnings from consolidated affiliates, are expected to be breakeven to modestly positive in 2019.

We expect 2019 earnings attributable to noncontrolling interest to be around $40 million.

Our consolidated tax rate for 2019 is expected to be about 25%.

Our rates will fluctuate due to the geographic mix of earnings and other discrete items.

This concludes our financial report on Greenbrier's successful first quarter of fiscal 2019.

And now, we will open it up for questions.

Rosie?

(Operator Instructions) Our first question on queue coming from the line of Brian Colley from Stephens Company.

So could you guys just talk about how new railcar pricing has trended sequentially?

And if there were any car types that kind of stand out as either seeing any favorable or unfavorable competitive dynamics?

All right.

I think that sequentially, look, comparing to mid last year, pricing has improved, and in fact, demand has improved, all right, so that we will see lag effect in our backlog from stronger pricing.

I think one has to be careful about concluding that this could continue across the board, particularly in the oil sector, depending on how -- what happens with oil by rail, that a lot of the tank car demand is disconnected from oil by rail, but there is a degree of it.

But in general, the overall market has strengthened, not weakened, in my opinion, over the last quarter or 2.

Got it.

And then, just thinking about the stock, you mentioned it's been volatile along with the market, but with your balance sheets in great shape and the cash flow profile this year should be pretty favorable, how should we be thinking about buybacks, just on the list of priorities thinking about capital deployment?

Sure.

The management team and the Board of Directors takes a balanced approach to how we deploy capital.

Right now, we're seeing a lot of strategic opportunities where we believe the return on investment is good in those areas, but we do consider ways that we can return capital to our shareholders, including stock buybacks, which is why the board, just yesterday, increased our buyback authorization to $100 million and expanded it out to 2021, as well as approving our 19th consecutive dividend of $0.25 per share.

Can I just add to that, that I suppose if there is a bright spot to the decline in the market, the yield on our stock is now 2.5%, which is a reasonable yield.

We also reviewed extensively at the board meeting yesterday and last night, our return on capital -- the return on investment in capital in our manufacturing and other related groups.

It's very difficult to compete with kinds of rates we have achieved historically.

Embedded in the total ROIC returns that Greenbrier has, and we're very focused on our ROIC, is a very sensational story and our experience over time in manufacturing.

So as we expand and build world-class manufacturing facilities internationally and we strengthen the ones we have in North America, I expect it will be difficult to compete with the kinds of returns that are in our core businesses.

However, we have been regularly reviewing dividends, and we are continuously looking at shareholder value, total shareholder return.

So these are things that we will look at every single quarter.

Our next question on queue is coming from Matt Elkott from Cowen and Company.

Can you guys talk about the -- how the inquiry in order activity has trended post the fiscal quarters' end in December and January?

Lorie just had a conversation this morning with our -- one of our senior commercial officers, so I'm going to let her answer that question.

Sure.

And actually, Bill, in your prepared remarks, you shared, which we don't always give this, but we are really excited about the order activity that we've seen post November 30.

We've received orders for at least 1,000 railcars.

In talking with Brian Comstock who oversees our North American activities as well as our Brazil activities, we're really excited.

We're not -- we're not seeing any falloff in inquiries, and we're seeing really broad-based demand.

Yes, if you look at the forecast for the next 4 years, obviously, there's an expected level of activity that's much greater than in 2018.

And so that should be expected.

We -- I think in general, I know people think maybe we're pollyannaish, but we're very optimistic about -- and particularly, North America and the markets, where we're investing.

We will certainly, shoot a flare if we change our viewpoint.

But right now, I think the people I've told and the conversations I've been in, it hasn't -- it really hasn't pulled back.

It certainly -- we're not looking at 10,000 car quarters but the 5,000 car type of objective that we have through this quarter and maintaining our backlog in a market like this, we think, is still very doable.

Got it, that's very helpful.

And then, switching back to the guidance.

You affirmed your guidance.

I know you -- it seems like even your assumptions that go into the EPS guidance have largely remained unchanged.

Sorry if I missed it, but did you say anything about the interest in foreign exchange line, because it seemed it was pretty low in the quarter.

How should we expect that to trend?

And was it the foreign exchange component that drove it down?

Yes, it was -- the foreign exchange component was relatively low in the quarter.

But you've seen our 10-Q, we break out between the excess and the foreign exchange line and that's filed today, it will be filed today.

So if you want to look at those 2 elements separately.

Matt this is Justin.

Just on a look-forward basis, our average expenses, we run at about $7 million per quarter and then the FX part of it is what causes fluctuations at this point.

So that's kind of a good run rate from that perspective.

And I would say that the reason we didn't adjust guidance for the overall year for 1 line item is that you can appreciate we've got 9 more months to go, and once you hit -- have the opportunity to review the entire income statement, there's a lot of ups and downs.

And so as a holistic view of the year, we affirmed our guidance.

Just another point would be the tax rate for the quarter was higher than Adrian has highlighted for the year.

This seems to occur in the first quarter of the year.

There's a number of points, as Lorie points out.

But we think all of the activity in this year is execution and manufacturing.

The market is not the issue for us this year and into next year.

We don't believe it's our execution on each -- in each of the manufacturing venues in which we're operating.

And that's the part that is -- that has our full attention right now.

Okay.

No, that's helpful.

And did you guys say that earnings are going to be about 20% in the first half of the -- for the full year?

So 20% of the full year earnings are going to be in the first half?

Is that -- or am I wrong about that?

Yes, 80% in the back half and 20% in the first half.

Okay.

And then, the net gains are still going to be first half weighted, I guess?

It's going to be about 50-50, with about $40 million for the full year, and about 1/2 of it is -- we actually -- probably a little over 1/2 and not quite.

I would have a hard time saying it, it's much more than maybe 55% weighted in the first half.

Matt, for some of these more, kind of, granular questions, we can hit these in our follow-up call also.

Yes, okay, sure.

Absolutely.

I was just trying to get a sense of the cadence of earnings.

It looks like maybe the second quarter may be the lowest quarter of the year, potentially?

It would definitely be, I would say, in line or possibly down from where we're right now.

And like I said, we can kind of walk you through some of your more specific questions following up.

But yes, we would say that our Q3 and Q4 will be the stronger earning quarters of the year.

Our next question is coming from Ari Rosa from Bank of America Merrill Lynch.

So first question -- so Adrian mentioned that orders being delivered in first half were negatively impacted by the competitive environment when those orders were taken.

Just wanted to confirm, is it safe to assume that those orders were mostly being taken in 2016 when there was a bit of a low in the industrial environment?

And if so, would you say that current orders being taken now are likely to see a step-up in the margin, maybe as we move into I don't know, second half of '19 or into 2020?

Could you see those margins move back into the, kind of, mid- to upper teens on the manufacturing side?

So Ari, this is Justin.

I'll take a shot at it and then someone else can correct me wherever I go off space.

But I would say that even starting in the back half of 2016, pricing has been very competitive all through 2017, '18, and it's been getting modestly better but it's still a competitive pricing environment.

And so the order activity that we are delivering on now was taken earlier in calendar 2018, potentially late calendar '17.

And we are seeing improvements in pricing that will flow through in the back half of this year.

Margins will improve in the back half of this year, and we'll exit the year probably around that mid-teens range.

Got it, okay, that's helpful.

And then just -- so it maybe -- it's a little bit early to be talking about this but just given the pretty robust order activity, could you talk about what's booked for fiscal '20 thus far?

I would say that we're -- again, we've got 9 months to go yet for our fiscal 2019.

We're definitely developing our production plans for 2020, but it will be a little bit too fluid to share that sort of guidance with you guys at this point.

Yes, as we said earlier, I think Lorie mentioned it, we are booking orders into '20 -- fiscal 2020 and calendar 2020, but we're not prepared to disclose the amount at this point.

We'll revisit it in the next quarter or so.

Got it.

And then, just last question for me.

There was a little bit of a step-up in the SG&A as a percent of revenue.

Is that expected to continue?

Is there something unique driving that?

Or what's kind of behind that number?

I think one thing you might see is the repair business is consolidated.

So repair is showing growth in our SG&A line.

So that's probably the increase that you're seeing.

That's not a surprise to us.

And it's expected to continue then, it sounds like?

Yes.

On a run rate basis, I think the dollars -- but as we've talked about, our revenue should be stepping up as we move through in the year.

So the math would say that on a G&A as a percentage of revenue, it's going to go down, yes.

Our next question now on queue is coming from Allison Poliniak from Wells Fargo.

I guess the first thing, the volume and efficiencies in the wheel and repair business, is that something that starts to rate itself in Q3?

Or should we be expecting more pressure on that line still?

And I'm sorry, Allison, you're a little bit muddled there.

Were you talking about volume in our aftermarket's business, wheel, repair & parts?

Yes, just the margins around that, sorry.

Sure.

I would say that sometimes the second quarter can be a better quarter for aftermarkets to business, depending on weather conditions.

We often have talked about the winter work and the impact of that, that can benefit that side of our business.

We've not seen a lot of that bad weather thus far this quarter.

And then on the repair side, we are focused on the 12 shops that we brought back into Greenbrier post the dissolution of our GBW joint venture.

That's not something that's going to get and turned around overnight, but I would say particularly aware of this group now reports to me that every plant is doing a little bit better and the team that's focused on this network, they've got a good plan in place to improve the profitability across that network.

Can I just add, Lorie, that our -- on of our goals from last year as we talked about, was to reduce the drag on our earnings from that unit.

We're definitely making real progress there, and we expect to have directional improvement -- very solid directional improvement for our second half of the year.

We -- and then the second, syndication volumes lower in Q1.

Obviously, the cars on balance sheet went up a little higher.

Is that just a timing issue where that starts to deliver in Q2?

Or is there something else that we should be thinking about there?

Yes, Allison.

It is just a timing issue.

Next question comes from Matt Brooklier from Buckingham Research.

So just a question with respect to your manufacturing gross margins.

I think this question was kind of asked in a different way a little bit earlier in the call.

But I'm just trying to get a sense for if we should anticipate, kind of, a similar manufacturing gross profit margin in the coming quarter.

Do you think there's a potential for maybe things to improve a little bit?

What are your thoughts on, kind of, the sequential direction of margins from here?

So, Matt, it's a great question, and we think that there's probably a little opportunity for movement, but we expect it to be pretty much in line with where we're at in Q1 with more improvements in Q3 and Q4 as our production changeover.

Think about the first half of the year is positioning us for back half of the year execution.

So we will really expect to see improvements in -- starting in Q3, flowing into Q4, as we exit the year.

Okay, that's helpful.

And then, I don't think you talked to in your prepared remarks but if you could just maybe give a little bit of color in terms of how much marine revenue contribution there was in the quarter.

And then, if there's been any change in terms of what you expect from that business in fiscal 2019.

So revenue in the quarter was up, I would say, around $10 million.

We are ramping up some activity on, probably I think the largest barge that we'll have ever built.

We'll do that over this coming quarter.

It's going to be a tremendous benefit to our Gunderson facility here in Portland, Oregon, just because building such a large barge takes a lot of work force, absorbs a lot of overhead.

We don't -- we expect it to be kind of fairly steady through fiscal '19.

Next question comes from Willard Milby from Seaport Global.

I wanted to talk a little about the Carson storage.

Obviously, year-over-year, much improved, but the sequential bump in the last 2 months of data.

From where you're sitting, what do you think's driving the recent lift in stores levels?

And at what point should we start to think that increasing storage levels is concerning for new orders?

I would say that what we saw in December is simply not enough data to establish a trend.

There's a lot of speculation in the literature about, what is precision railroading going to do.

And the answer to that is, so far, very mixed.

It has had some system-wide knock-on effects to make the loss, I think, worse?

As far as the railroads are concerned.

But there -- and there is a seasonality that also goes into this.

So I would say we just have to wait the -- what we have looked at is the whole year and definitely, the sequencing is something we watch very, very closely.

But it's been down for the year.

The jury's out on precision railroading, I think on far as how it affects overall car storage, but we're going to watch that very closely.

And is there really any, kind of, rule of thumb on storage levels?

Or is it really cycle dependent?

I would say it's fairly cycle dependent.

I think one of the things that's really interesting is that even during a really robust market, there ended up being cars in storage.

And so yes, I think there's always going to be some level of cars in storage so they will probably never come out of storage and/or the seasonality.

Yes.

Just like structural unemployment, there's a level of storage that's frictional or structural in cars and eventually will be worked out of the system or simply are used for peak or -- peak demand -- and cycle peak demand and are not strapped.

So it's a complicated type of data point given the mix of the 20 different kinds of railcars that might go into that demand.

From time to time, you'll see the composition of that fleet vary, and so it's important to look at the whole as opposed to just the data.

I mean, it's important to look at the mix as opposed to that -- just that single data point.

All right.

And on new order activity and increase on new orders, when I look at the -- or when you think about the ratio of -- or the level of increase that you're getting in the follow-through to firm orders, is that trending similarly to the past couple of quarters now?

I know you mentioned you had 1,000 orders after the quarter ended here, but was kind of curious if increase were still following through to full -- firm orders at similar rates that we've been seeing or if there's been any change there?

The inquiry rate continues to be, as Lorie expressed -- and we haven't seen the -- any knock-on effect from the chatter on economic circumstances and uncertainties and blah, blah, blah.

There are a lot of specific factors driving this.

Why do people buy or lease railcars to carry freight?

And they do it because they need specific cars for specific freight, and there's about 20 different kinds of cars.

So for example, in the chemical area, in plastics, downstream activities, there's been a tremendous investment in capacity in North America.

due to many factors.

The fracking and the development of our own energy dependence has been part of that.

We have forces going on that are -- that's causing shippers and others to look at their chemical and other tank car in keeping -- the tank car fleets in keeping with the FAST Act deadlines that are coming up in April 2020 for unjacketed CPC-1232 cars to take those out of crude service.

Railroads are putting pressure on pricing already in ethanol on DOT-111 so it has to come out 2023.

You've got the 10-year certification wave that is still hitting the industry.

And often, when certifications occur, they simply will look at replacing ours out.

So there's a lot of churning going on in the tank car market.

It's not all driven by crude by rail.

So these are all important elements of the demand side.

So it's very hard to look at the total economy and extrapolate.

You can look at velocity.

If velocity -- you've got to look at velocity pretty closely, and that's why we have emphasized it in all of our conference calls.

All right.

And as far as, I guess -- but follow-through really hasn't changed for better or worse over the last couple of quarters as far as people looking to buy and actually following through with the orders?

I would say that's a fair statement.

It's not actually a ratio that we specifically track, but the sense that I get from our commercial team is there's a lot of inquiry, and as we've indicated, we're converting a lot of those.

The ones that we want to, we're converting into orders.

We certainly -- as we've talked about in the past, sometimes there are inquiries that just don't make sense for us, and with the strong backlog that we have, we don't have to feel compelled to chase orders.

Yes, and let me give you a very clear opinion about the last 2 quarters.

Actually, the inquiry and the activity level has improved in the last 2 quarters, it has not declined.

I -- and I think that similarly, pricing in many categories has improved.

Demand is better than it was earlier in 2018, not worse.

Our last question on queue is coming from Steve Barger from KeyBanc Capital Markets.

You talked about operating cash flow of $250 million this year.

Nice step-up from last year.

Is all that coming from syndication and operating improvements in North America?

Or are you seeing the international operations being strong contributors to operating and free cash flow this year?

Steve, this is Justin.

I would say that the majority of it will be generated in North America because that's where the majority of our production and delivery increases will be occurring.

Are you seeing those international investments contributing to free cash flow?

I would say that they are performing as we expected and are providing operating cash flow on a modestly positive basis at this point in light of -- in Europe, you have a -- an improving cycle there.

But it's, as you know, after watching this space for so long, you have a working capital build a little bit as you head into an improved performance cycle.

Brazil is still very volatile at times, and since we don't consolidate it, it doesn't actually flow through our financial statement.

But ultimately, getting back to your original point, a lot of it is -- the strength is in North America with some modest improvement in Europe.

And I would just add onto that.

I mean, if you look at the worldwide rail freight market, North America is going to be the vast majority of what makes up Greenbrier's business.

That being said, we do have a definite pillar of growth because if we look at some of these international markets, where we think that there will be tremendous growth opportunities.

We've been

(technical difficulty)

We standby for the conference.

The speakers got disconnected from the call.

Thank you.

Lorie, again.

Sorry for the disruption to the call there.

Just to conclude the remarks that I was making, we were talking about how the North American industry will continue to be, probably, the vast majority of Greenbrier's result, at least for the near term.

But that does not mislead us from the investments and the expansion into international markets, where we see opportunities in some of these emerging markets where they are investing further in rail freight transportation.

This will take a little bit of time, but we are very encouraged by those activities, and we expect them to pay off in the years to come.

And actually, I was going to add that we are running out of time in light of our board meeting and annual shareholders meeting this afternoon.

So Mr. Barger was going to be our last questioner at this point.

And then, I was going to say, thank you very much for everyone's time and attention today.

I will follow up with any individuals who had -- who were unable -- who were in the queue and unable to get a question asked.

But we also are at 2:00 Pacific today webcasting our shareholder meeting.

So please dial in and join, and we should have better technological success.

Thank you, everyone.

Happy new year.

That concludes today's conference.

Thank you all for joining.

You may now disconnect.