Greenbrier Companies Inc (GBX) 2021 Q4 法說會逐字稿

Hello, and welcome to The Greenbrier Companies Fourth Quarter of Fiscal 2021 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, Eileen. Good morning, everyone, and welcome to our fourth quarter and fiscal 2021 conference call. Today, Greenbrier announced that effective March 1, our founder, Bill Furman, will transition to the role of Executive Chairman and the appointment of Lorie Tekorius as Greenbrier's next CEO and President.

In addition to Bill and Lorie, Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer; and Adrian Downes, Senior Vice President and CFO, are participating in today's call.

Following our update on Greenbrier's performance and our outlook for fiscal 2022, we will open up the call for questions. In addition to the press release issued this morning, 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 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 2022 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

And now I'll turn the call over to Bill.

Thank you, Justin, and good morning, everyone. As Justin indicated earlier, today, we announced our Board of Directors has elected Lorie Tekorius, Greenbrier's current President and Chief Operating Officer, to be the company's next Chief Executive Officer, a position she will assume on March 1, 2022.

Lorie and I, along with the Board, have been working towards this goal for several years. Together, we've built a very strong talent bench. I'm very pleased with the teams we have in place for the future. And I'm also pleased with the strategy that Lorie has evolved, which I think will take the company to higher peaks. I want to take this opportunity to congratulate Lorie. Lorie, I know you will do an outstanding job as Greenbrier's next CEO, and I look forward to working with you through the transition. I'm very proud of you. Everyone joining us today should understand our joint commitment to ensure the smoothest possible transition.

When Lorie becomes CEO, I will concurrently assume the newly created role of Executive Chair until September 2022, when I'll retire from an executive position. In this role, my focus is on continued work with our Board of Directors as well as support of Lorie in her transition to CEO. I will remain as a Board member until 2024.

This transition is coming at an important and exciting time for the company. As we've discussed over the past several quarters, the recovery in our end markets is gaining momentum. Our fiscal fourth quarter was Greenbrier's strongest quarter of the year. Greenbrier's fiscal fourth quarter was, in fact, our fifth quarter in a row with increased new railcar order activity. It was also Greenbrier's third consecutive quarter with a book-to-bill ratio over 1, leading to a book-to-bill of 1.33 for fiscal 2021.

The spread of the delta variant has created challenges worldwide for business and society, and it has made the pace of the recovery partly unpredictable. It continues to impact Greenbrier on a personal level. Both vaccinated and unvaccinated individuals across our workforce have experienced isolated COVID-19 infections during the fourth quarter. I was one of them, along with my wife, Jane, despite being both double-vaccinated. Fortunately, our symptoms were mild, and we have fully recovered.

Thanks to our COVID-19 safety practices, we have avoided widespread outbreaks at all facilities. Sadly, however, we recently lost another colleague, Pedro Gonzalez. Pedro was an 18-year veteran of the GRS Kansas City wheel shop. He is the tenth member of Greenbrier family we have lost to COVID-19. We are supporting his family during this difficult time. We're urging people to get vaccinated and to keep social distancing. The health and safety of our employees is paramount. We continue to maintain a vigilant posture, particularly as we integrate new manufacturing employees in response to expanding production capacity.

Of course, the virus is not the only issue to be faced. Global markets have been impacted by labor shortages, supply chain disruptions, volatile commodity markets and other disruptive headwinds. These factors persist into Greenbrier's fiscal 2022. And this is all in addition to what I would term the regular challenges for a manufacturing, maintenance and leasing business as we transition from low production after a rapid downturn and then a rapid spike-up in employment rates to higher employment and greater levels of production activity.

So this is an environment that demands the disciplined strategy we've adhered to since the outset of the pandemic. It also demands our best efforts. Specifically, our strategy has been to, first, maintain a strong liquidity base and balance sheet; next, to survive the COVID-19 and economic crisis by safely operating our factories while generating cash flow. Everyone knows that in an upturn, cash is required to replenish working capital and for growth. And finally, we needed to prepare for and manage well during the economic recovery and the forward momentum in our markets, which is now well underway.

Our actions have been purposeful and successful and is the result of a strong team effort. A flexible approach and scalable manufacturing capacity are both central to Greenbrier's response to an improving market outlook. The demand outlook is strong. It's strong in all of our markets globally, notwithstanding the impact of elevated steel and other input prices to our customers' decision-making processes.

I'm proud of how seamlessly our teams are ramping up to 22 production lines by the end of November from just 9 lines of operation at lower rates of production only 9 years ago -- 9 months ago, sorry. This phase of our strategy has presented novel challenges and operational risks as we add a large number of new production lines, many involving product changeovers and adding new people. Safety, availability of labor, supply chain constraints are key priorities for Greenbrier to manage as production increases.

Importantly, our liquidity position remains strong. Maintaining it remains a top priority. We are balancing efficient management of working capital with protecting our supply chain and ensuring production continuity.

Before I conclude today and hand the call over to Lorie, I'd like to remind our listeners that we do not expect the market recovery to follow a smooth straight line. Our industry is still recovering from the shock caused by the pandemic. Uncertainties and obstacles do remain. It is clear, however, that our strategy has produced and is producing results. And I believe we are well on the other side of where we have been.

We're also pleased to have recently increased the scale of our leasing fleet through our GBX leasing joint venture. Our lease investment provides Greenbrier tax-advantaged cash flows. It reduces and, in the future, will continue to reduce exposure to the inherent cyclicality of freight transportation equipment manufacturing and other sources.

At GBX Leasing, we are building a long-term annuity stream with solid credits, longer and balanced maturity ladders and product diversity. While doing so, we are foregoing some immediate revenue recognition in the short term to build for the future. All factors considered, Greenbrier is extremely well positioned to navigate the months ahead and deliver further value to our shareholders.

Before electing Lorie as CEO, we thought it important that she sketch out her strategy for the future. She spent 4 or 5 months thoughtfully putting together that strategy. In the future, we'll be happy to share the changes that this will bring. But as a headline, we look to technology, diversification and services and other ways to take the cycle out of the inherent manufacturing business cycle and grow for the future.

With that, I'm pleased to turn the call over and with my further congratulations to our next CEO, Lorie Tekorius. Lorie?

Thank you, Bill, and good morning, everyone. I want to express my appreciation to Bill and the Greenbrier Board for appointing me Greenbrier's next CEO. I'm honored and humbled to follow Bill as only the second CEO in Greenbrier's history. Bill and I have worked together towards this goal for some time, and I feel well prepared. I look forward to continuing to work with Bill on this transition and to build on the strong established foundation he created with our senior management team.

Today, we're reporting results from operation that continued the momentum from Q3. Volatility seems to be the new norm, and Greenbrier's employees rose to the challenge. The resiliency, flexibility and focus allowed Greenbrier to produce great results, in addition to providing excellent levels of service and the production of quality railcars.

Supply chain and labor force shortages in the United States were 2 of the most notable and unfortunately common challenges we're managing today. In the quarter, Greenbrier delivered 4,500 railcars, including 400 units in Brazil. Q4 deliveries increased 36% from Q3, reflecting manufacturing successful ramping of production over the last 6 months. This is our highest level of production and deliveries since fiscal 2020, and we're pleased to see another quarter of double-digit growth. Our global purchasing group continues to do an outstanding job even as disruption spread from basic raw materials and components to resins, paint and industrial gases.

Our global sourcing team has rapidly responded to changing supply dynamics and continue to take measures to ensure we have avoid significant production delays or line [interdictions]. And while hiring is currently challenging in the U.S., we're fortunate to have a strong intelligent labor pool in Mexico, allowing us to add over 500 employees during the quarter. And over the last 9 months, we've added nearly 2,000 employees in our manufacturing business. Safety continues to be a priority as we bring back our workforce in a measured manner.

In our North American network of maintenance and parts operations for Greenbrier rail services, we continue to make improvements in how we manage our operations and interface with our customers, including lessees. The continued focus on safety resulted in a record set in Q4 and full year safety performance. These positive strides were somewhat offset by labor shortages impacting operating efficiencies and an obsolete inventory adjustment in Q4. Excluding the inventory adjustment, gross margins would have been similar to Q3. I'm confident we'll be able to leverage the improvements made in GRS for 2022 and beyond.

Our Leasing & Services group, which includes our GBX leasing operations, had another busy quarter. Nearly 70 million of railcars were contributed into GBX leasing in Q4, bringing the total market value of assets in fiscal 2021 to almost $200 million. Subsequent to year-end, we acquired a portfolio of 3,600 railcars, a portion of which will also be held in GBX leasing. This purchase provides commodity, age and credit diversity.

Our GBX leasing fleet is valued at $350 million at the end of September and continues to gain momentum. As a reminder, GBX Leasing is currently utilizing a nonrecourse warehouse credit facility, a portion of which we expect to term out in the next few quarters with more traditional long-term railcar financing. Our enhanced leasing strategy will provide revenue and tax-advantaged cash flow, offsetting the cyclicality of railcar production.

Our capital markets team syndicated 1,000 units in the quarter and continue to generate liquidity and profitability. In fiscal 2022, we expect syndication activity to increase meaningfully as overall demand and production levels rise.

And in the next few weeks, Greenbrier will be publishing its third annual ESG report. I'm excited about the progress, as shown in the report, on a variety of areas and congratulate our internal ESG team for providing a valuable summary of how Greenbrier is serving its stakeholders.

And looking ahead, we continue to see positive momentum in fiscal 2022. Emerging from an economic recession and cyclical trough can be challenging in the best of times. But with the ongoing impact of the pandemic, labor shortages and supply chain disruptions, this year is going to be a completely different type of challenge. I'm pleased that we have talented employees and a strong management team with significant industry experience to guide Greenbrier through the next few quarters. I remain excited about the long-term opportunities for Greenbrier and proud to be leading into the next part of our journey as a company.

And now Brian Comstock will provide commentary on the railcar demand environment.

Thanks, Lorie, and good morning, everyone. While it feels like much has occurred over the last 3 months, overall, the economy continues to be trending in a positive direction, and economic indicators point to a sustained recovery in rail. While this recovery seems to be more unpredictable, we continue to think about it as a sharper V-shaped recovery with a sustainable crest.

Now instead of discussing industry statistics, I'm going to focus on a few important things from 2021 and how we're approaching 2022. In Greenbrier's fourth quarter, we had a book-to-bill of 1.5, reflecting deliveries of 4,500 units and orders of 6,700 units. This is the third consecutive quarter of growth in our book-to-bill ratio. For fiscal '21, Greenbrier generated orders of 17,200 units and deliveries of 13,000 units, which equates to a book-to-bill of 1.3. International order activity accounted for approximately 30% of this new railcar order activity. New railcar backlog grew by 2,000 units or nearly $400 million of value to 26,600 units with an estimated market value of $2.8 billion. Operations in each continent we operate in are carrying backlog that supports production well into fiscal 2022. Notably, we ended the fiscal year with a record backlog for Europe, where we have many production lines booked into fiscal 2023.

Greenbrier's lease fleet utilization ended August 21 at roughly 94% and has grown to over 96% year-to-date. Additionally, we are seeing improved lease pricing and term on all new lease originations and lease renewals. We have seen recovery in all of our markets. We have also seen significant increases in raw materials, components and shortages of basic supplies. We have seen traffic congestion throughout the network, especially at the ports, where a record-setting number of ships are waiting to be offloaded. Underlining the fact that when you shut down large portions of a global economy, turning it back on is not as easy as just flipping a switch. There will be disruptions and unintended consequences.

However, we continue to see growth opportunities in our global markets. Europe is beginning to see the benefits of the broad-scale economic reforms to address climate change. We are in the early days of a modal shift to freight from polluting and congested road travel to efficient, higher-speed rail service. We believe this modal shift will drive significant growth in railcar demand in the years to come. This growth is in addition to replacement demand as fleets in EU countries are aging, with many cars already well past the time for replacement.

Equally as exciting is the future of the North American market. Right now, we are seeing a return to replacement demand levels. But imagine what will happen when the United States follows a similar path as Europe. Freight rail is one of the more sustainable solutions because of its environmental-friendliness. Similar to Europe, we see an extended period of substantially higher demand except it involves one of the largest freight rail fleets and systems in the world.

With all that being said, Greenbrier's global commercial team is focused on not only the basic blocking and tackling of new railcar orders, leasing and service solutions but also on continuing to develop a more comprehensive an integrated approach for our customers globally.

Now over to Adrian for more about our Q4 and full financial performance.

Thank you, Brian, and good morning, everyone. As a reminder, quarterly and full year financial information is available in the press release and supplemental slides on our website.

Greenbrier's Q4 performance represents the strongest quarter of our fiscal 2021 year as a result of the continuing momentum we've been seeing in our end markets. I will speak to a few highlights from the quarter and provide a general overview of fiscal 2022 guidance.

Highlights for the fourth quarter include revenue of $599.2 million, an increase of over 33% from Q3; aggregate gross margins of 16.4%, driven by stronger operating performance as a result of increased production rates, syndication activity and lease modification fees. Selling and administrative expense of $55.4 million increased sequentially as a result of higher employee-related costs. Adjusted net earnings attributable to Greenbrier of $32.9 million or $0.98 per share excludes $1.2 million or $0.03 per share of debt extinguishment losses; EBITDA of $70.4 million or 11.8% of revenue.

The effective tax rate in the quarter was a benefit of 14.5%. This reflects the tax benefits from accelerated depreciation associated with capital investments into our lease fleet. These deductions will be carried back to earlier high tax years under the CARES Act, resulting in a tax benefit in the quarter and cash tax refunds to be received in fiscal 2022. I'm very proud of the close collaboration between our leasing and tax teams that maximize this benefit of Greenbrier over the course of fiscal 2021.

In the quarter, we recognized $1.6 million of gross costs specifically related to COVID-19 employee and facility safety. In 2021, we spent nearly $10 million, ensuring our employees and facilities could operate safely. The quarter also included an unfavorable adjustment for labor and materials in our lease business as well as unfavorable excess and obsolete inventory adjustments at Wheels, Repair and Parts.

Adjusted net earnings for the year attributable to Greenbrier was $37.2 million or $1.10 per share on revenue of $1.7 billion and excludes $4.7 million net of tax or $0.14 per share of debt extinguishment losses. EBITDA for the year was $145.2 million or 8.3% of revenue.

Greenbrier has a strong balance sheet, and with liquidity of $835 million, comprising cash of $647 million and available borrowings of $188 million, we are well positioned to navigate the market disruptions we expect to persist into calendar 2022. You may have noticed the tax receivable has grown to $112 million as of August 31. We expect to receive most of this refund in the second quarter of fiscal 2022. This is in addition to Greenbrier's available cash and borrowing capacity that I just mentioned.

In the fourth quarter, Greenbrier completed almost $1.1 billion of debt refinancing, extending the maturities of our domestic revolving facility and 2 term loans into 2026 and 2027. In addition to the GBX Leasing, railcar and warehouse credit facility, Greenbrier's legacy lease fleet is partially levered with a $200 million 6-year term loan, while the remaining fleet assets serve as collateral in Greenbrier's $600 million U.S. revolving facility.

Also in the quarter, we repurchased an additional $20 million of senior convertible notes due in 2024 and may, from time to time, retire additional outstanding 2024 notes in privately negotiated transactions within the limitations of applicable securities regulations.

Overall, in fiscal 2021, Greenbrier completed $1.8 billion of financing activity, including $1.5 billion of debt refinancing and the creation of the $300 million GBX Leasing warehouse credit facility. We have effectively doubled the maturity profile of our existing debt at favorable interest rates and removed the 2023 refinancing risk.

Greenbrier's Board of Directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long-term shareholder value. Our Board believes that our dividend program enhances shareholder value and attracts investors. Today, we announced a dividend of $0.27 per share, which is our 30th consecutive dividend.

Based on current business trends and production schedules, we expect Greenbrier's fiscal 2022 to reflect deliveries of 16,000 to 18,000 units,, which include approximately 1,500 units from Greenbrier-Maxion in Brazil. Selling and administrative expenses are expected to be approximately $200 million to $210 million.

Capital expenditures of approximately $275 million in Leasing & Services, $55 million in Manufacturing and $10 million in Wheels, Repair and Parts; gross margins to be lower in the first half of the year, reflecting a few primary factors. Production reflects more competitive pricing taken during the pandemic 9 to 12 months ago. Early in the year, we will have some operating inefficiencies due to product line changeovers and continued production ramping. As production rates stabilize, operating efficiencies will increase, benefiting margins.

More production is scheduled for syndication, our leasing fleet activity, and will be on the balance sheet until final disposition is decided. We expect margins to improve over the course of the year as we work through the less profitable mix, achieve production efficiencies and other factors. We expect deliveries to be back-half weighted with a 40% front-half, 60% back-half split.

As Bill mentioned earlier on the call, the introduction of GBX Leasing and our shift in leasing strategy has an impact on our production and delivery activity. Historically, we would build a railcar with a lease and syndicate it a few quarters later. Now in addition to direct sales and syndication activity, a portion of production will be capitalized into our lease fleet. While this activity reduces revenue and margin in the near term, it creates a long-term stable platform of repeating cash flows and income and is part of our strategic shift to smooth the impact of the new railcar demand cycle on our results.

In fiscal 2022, approximately 1,400 units are expected to be built and capitalized into our lease fleet. These units are not reflected in the delivery guidance provided. We consider a railcar delivered when it leaves Greenbrier's balance sheet and is owned by an external third party.

We have an experienced management team that has a track record of success in identifying and taking advantage of opportunities as well as managing through the challenges and factors we described earlier. As a result, we are optimistic that our operating momentum will continue into fiscal 2022, albeit in a nonlinear fashion.

And now operator, we will open it up for questions.

(Operator Instructions) Our first question today will come from Justin Long with Stephens.

Bill, it's been a great run. Lorie, a well-deserved promotion. So I'll start by saying congrats to you both on the transition.

Thank you, Justin.

Thank you, Justin.

Maybe to start with one on the delivery guidance for 16,000 to 18,000 units this year. How much of that is secured in the backlog today? And I know you called out the 1,500 units for Brazil, but could you also speak to the number of deliveries you're expecting in Europe?

So in our delivery -- good morning, Justin. This is Justin. And our delivery guidance between 80% to 90% of that is already included in our backlog at 8/31. And then our European expectations are kind of in that 4,000 to 4,500 range, so that's kind of the current expectation, although I think if you talk to our European management team, they would be looking to figure out ways to increase production because demand is strong over there.

Okay. That's helpful. And then, secondly, I wanted to ask about the Leasing & Services segment. We saw a spike this quarter. Any color that you can provide around the tailwinds that you called out? I think it was higher interim rent and lease modification fees. Anything that was kind of onetime in the quarter? And maybe you could help us think about modeling this segment in fiscal 2022 just because of all the moving pieces with GBX Leasing and syndication activity.

That's a great, great question. And I think that I wouldn't characterize anything that occurred in Q4 as one-off or nonrecurring. It's just a part of kind of our business where it can -- it's more a matter of timing at times. I think, going forward -- I mean, as you build a lease fleet, it is a little bit of a slower build on revenue. It takes a while for that to really gain momentum.

We're very pleased with the progress we've made this year, but it's going to take -- we think that we see an improvement and some modest growth on the top line revenue, but at the same time, our margin profitability will be, I would say, similar to what we've seen in past years in that 50% to 60% range. But ultimately, it's -- I would say, I think that we are going to work to have a stronger year than maybe what we're guiding to right now, and we'll see what we're seeing in the year.

Right. And I would just add on to that, that yes, I think we're taking a modest approach to growing the number of railcars that we have on our balance sheet. And as Justin said, it will take some time to offset the onetime pop that you might get from selling those externally. But we think for Greenbrier's long term, having that repeatable revenue, that stable cash flow will benefit us as that fleet grows.

The other thing that I would add when you're asking about deliveries is we've been doing this for a while. We are very focused on the safety of our workforce. We don't want to put too much pressure as we're adding all these additional lines to also be increasing production rates in a way that really isn't the safest way possible for us to operate. I know that the -- our commercial team and our manufacturing folks, they've got a lot of opportunities and ways that we could, but right now, we're taking a more modest approach, and we can update that as we progress through the year and see how we get traction.

And Lorie, just specifically to the modeling question on leasing, we do expect leasing to have a sizable 3-year impact on EBITDA starting -- beginning to grow rapidly. It's beginning to rival some of the other smaller business units already. We are 75%, again, above the target of $200 million when you count the portfolio purchase. So we do expect this to be a significant business. And I think as we have in the last couple of quarters, we'll be breaking out information on the leasing business so that it will have more transparency on leverage and earnings.

Our next question comes from Matt Elkott with Cowen.

Lorie and Bill, congratulations on the upcoming transition. Justin, I think you said 80% to 90% of the expected production for fiscal '22 is already in the backlog, but the demand environment is pretty strong and improving. Are you guys factoring in very modest orders throughout the year for '22 delivery because you're hitting close to maximum production capacity after the rightsizing you've done in the last couple of years?

I'm going to hand it over to Mr. Comstock, who is living a daily in the commercial.

Thanks, Justin, and thanks for the question, Matt. Right now, I think, as Justin said, that currently we're looking at probably 80% to 85% of the orders are in the queue, but we continue to look at flexibility in our manufacturing lines and how we ramp those lines up to accommodate customers and customers' needs.

I think one of the important factors, if you think about the future, is we're seeing customers willing to push out orders into 2023 and even talking in 2024. So from our perspective, we're getting good long-term synergies on some core lines that will take us well into the future. So it's really kind of a combination of continuing to field orders, which are -- continue to be very robust and diverse and accommodating as we can. But also you've got a lot of people that are looking for long-term sustainable production, which is a positive trend for us.

Can you talk to pricing and lease rates, just while you're on that subject. And by queue, you don't mean the quarter, you mean the pipeline, the (inaudible) business.

Correct. Correct. Yes, I think, as I said in my opening remarks, on the leasing side, and I think others have reported this as well, we continue to see positive momentum in lease pricing and probably, more importantly, in lease term, which is a good opportunity for the industry and pricing in general. There has been good discipline in the industry recently, and we're seeing margin enhancement as orders progress through the quarter.

That's very helpful, Brian, because you addressed part of my follow-up question. So your production guidance implies, at the midpoint, about 31% growth, which is pretty solid, but do you guys have a sense of how much high steel prices as well as supply chain disruptions are limiting the growth production potential?

Yes. It is Brian, again, Matt. Great question. It's something I'm sure that a lot of people are interested in. Today, we haven't seen any negative impact due to the high steel prices. And in theory, if you listen to all the great forecasters out there, we're probably near peak, at least we hope we're near the peak cycle of the high steel prices. And so far, we really haven't seen any pullback at this stage.

Our next question comes from Allison Poliniak with Wells Fargo.

Echoing again the congrats. Bill, you certainly built a strong foundation of both business and talent and certainly leaving Greenbrier in great hands. So best of luck to you both on that. With that, Lorie, I know Bill had mentioned you have your own strategy that you're coming forward with. Any high-level thoughts just as you kind of look at the portfolio today, any businesses that maybe you think needs a little bit more attention here that you want to focus on in the earlier stages? Any color in terms of your strategic direction here?

Thanks, Allison, and thanks for the vote of confidence. At this time, I don't think I really want to start unpacking what might be our strategy going forward. I want to make certain that we do that in a more deliberate fashion, a little bit further down the line. We have grown an amazing company over the last 40 years, and we've done some really great things. There's always opportunities to look at things through a different lens and think about how we might enhance things. I think Brian mentioned also focusing on how we integrate better maybe some of our operations and how we go to market to be a better solutions provider for our customers.

Got it. That's helpful. And then I just wanted to go back to Justin's questions on the Leasing & Services side. Benefit of lease modification fees, can you guys give us any color on, I guess, how impactful were those fees? Any way to help quantify that to some extent, kind of what they were and what the impact was?

Well, I think as we've spoken about for years, essentially for even decades, Greenbrier works with our customers to solve their problems. And so we've had customers that have needed to make changes to lease terms and make changes to existing contracts, and we've worked with them. And sometimes, it's a matter of -- it does require that we are [made a whole] or if we are changing contract terms.

And so at the end of the day, it is a benefit that has minimal cost attached. So it flows through to margin 100%. But at the same time, it's not something that is nonrecurring. It's just a normal part of business, but it was a benefit in the fourth quarter and was one of the reasons why our Leasing & Services margin was a little higher than it has been historically.

Our next question comes from Bascome Majors with Susquehanna.

I just wanted to clarify with the new accounting and elimination and capitalizations of cars. When you say 16,000 to 18,000 deliveries globally in the 1.4 capitalization, you're implying your production rate of 17,500 to 19,500?

Yes, Bascome.

Okay. I just want to make sure that was added. And maybe bigger picture, I mean, there's been so many changes over the last 5, 6 years, both in the market and your portfolio with acquisitions and this lease vehicle and that becoming a core part of the story. Can we take a cut at some of the key inputs if we were the mid-cycle earnings power of new Greenbrier? I understand that you probably don't want to throw an EPS number or range out there but things that we should consider on how the business should be doing when the market's humming at a steady state.

Bascome, let me take a shot at that, and then Lorie and even Brian may want to step in and comment. And thanks for the comment about the changes in the last 5 years. The company has dramatically grown and changed. I think if you look at the strategic drive behind this, it's multi-continent now. In the North American market, we have come a long ways from having a single factory with 2 production lines to multiple facilities in the United States and in Mexico.

We have a strong market position in every freight car that we want to be in, in North America. We have a very strong market share. And what does that mean? What does it mean from a business perspective? It means we see a lot more opportunities. And we are at the table -- we have a place at the table in every transaction that comes up. And that's not just in manufacturing. It's also in services. Lorie mentioned services and integration, service design, leasing. All of this fits together in a go-to-market strategy that gives us a lot more leverage, and that should translate into higher margins, greater volumes and more profitability.

Scale matters, and we have achieved scale over this last 5 years. And we'll strive to continue to do that if Lorie plays out the strategy that she's working with our team on now.

And of course, I would say it would be premature for her to say much about that because some of the people sitting around the room have not yet had the opportunity the Board has had to review that in depth, but we'll be doing it in the next several months, and then we'll say more about it. But it's a bigger, stronger platform. And I think it bodes well for the net of that we've got out there to capture opportunities, translate them into value.

Our next question comes from Steve Barger with KeyBanc Capital Markets.

And yes, congratulations to everyone who's facing a change. Just to level set expectations, if I work through your initial guidance at normal ASPs and your SG&A guide, and I don't make big changes to dispositions or minority interest, it looks like initially EPS will be around $2, maybe a little bit less. Am I thinking correctly about that? Or am I missing something?

I don't think we're ready to get into that level of guidance or that granularity at this point. I think bearing in mind the continued shifting in the landscape, we wanted to provide a little more color on our fiscal 2022. But at the end of the day, it's -- there's a tremendous number of moving pieces, both positively and some things that we aren't aware of. So at the end of the day, from Mr. Comstock's perspective, he's getting regular feedback and conversations about how can we increase throughput.

On the flip side, we continue to have supply chain issues, labor shortages in the U.S. So it's trying to find a balance of how can we provide some additional clarity for you guys who are having to build models and -- but also put out something that is reasonable.

And I would just say, I mean, we are empathetic to the fact that you guys are trying to build a model, but I would expect that you appreciate that we're running a business that isn't just about the quarter or the year, and we're focused on all the different things. And I think the last 18 months have certainly shown us that try not to be too confident that you know what's going to happen.

There have been too many things that have gone on. I would hope that you would have some appreciation for the fact that this team has been at this for quite some time. We've got a great network of shops, whether it's for maintenance or building new cars. We've got a great commercial team, and we are focused on driving more value to the bottom line, and we'll be doing that as quickly as we can, but we also want to make certain that we take care of our workforce and our customers.

Let me just add something. This business is really interesting and it's very resilient. The mirror volume of orders can drive momentum, overhead absorption, if you can increase production on a single line from 2 per day to 10 per day. And as you see, the order pipeline filling up, one has to be really optimistic about the ability to build on operating momentum.

The amount of that momentum is in the environment we're in. And perhaps we're being a little too cautionary about talking and talking about this environment. I think we're on the downhill slope of the pandemic. We keep hearing and are seeing many things that disturb us, but we haven't really been touched by the supply chain difficulties. We managed to dodge all those bullets.

So the kind of thing that can happen in a year like this is really not reflective of what the last 12 months might have done. We were very happy with the growth start we had with leasing, made a big difference, but I think this will be the year of margin enhancement, revenue enhancement and operating efficiency. And I know that Brian Comstock and Lorie and I and Justin and others have been talking about that a lot. It's just really hard to lay it out and anticipate at all.

Totally understand. I appreciate all that qualitative detail. And really, that was the motivation for my question. You called out the inflationary environment and labor and supply chain issues, which we are certainly seeing across a lot of different companies. And that's what I was really trying to get to in terms of 40% of deliveries in the front half and then the inherent operating leverage with increasing production offset by some of these issues.

I guess I'll just ask a follow-up. Does manufacturing gross margin stay double digit in the first half, given the headwinds we're facing? Or should we be more conservative in our models just as you work through the near-term challenges?

I'll jump out on a limb there and say I expect it to be double digit in the first half of the year and stronger in the back half of the year. And Brian Comstock is vigorously shaking his head, yes.

Yes. Absolutely, Steve. When we look at pricing, there's no reason to think that pricing is going to recede at all, and we'll see improvement throughout the year.

Since we're later in the call, can I ask a big picture question or I can get back in queue if there's someone waiting.

Go ahead.

So Bill, I wrote this for you, Bill, but Brian, you brought it up. If you just pull up 10 years of railroad traffic, the trend line is flat at best, maybe slightly down. Coal has obviously been a big part of that. But regardless, there just hasn't been a lot of traffic growth outside of intermodal. And what are your thoughts on what and when will cause this low or no growth trend to reverse? You brought it up in your slides, but I'm wondering if you could just address that more directly.

Well, that's a tough question. We have our public policy guy, Jack Isselmann, here today, and if you've been paying close attention to everything going on in the government, which is also possible to do. The STB has gotten a lot more feisty. It could be that STB oversight of the rail industry will be a stimulus to a more responsive customer-driven as opposed to profit for the short-term driven thing.

Everybody has a hard time understanding a simple fact about our industry. The traffic loadings are an amalgamation of ton miles from 20 to 30 different commodity types and sources. We've had booms in coal. We've had booms in centerbeam cars for lumber transportation. We've had booms in small cube covered hoppers for their transport of sand and oil, oil by rail.

So all of those things flush through and they produce the statistics to which you refer. But in fact, if you look at what Brian mentioned in Europe and you extrapolate it to the United States and you look at ESG, environmental impact, carbon footprints, rail is the place that growth should take place. It should occur. It's 3x more efficient in carbon use and pollution. It uses a lot less fuel to produce -- to ship a ton mile. It could be that a regulatory environment would give a lot of stimulus to rail traffic.

But the traffic and demographics that we see with all of the negative things that people talk about for our industry, for railcar builders, has been positive. The velocity has declined. The traffic is still stronger year-over-year. It's really a great environment, particularly as you look out in the future and see what might occur and what almost has to occur in rail over the next decade.

Our next question comes from Ken Hoexter with Bank of America.

So congrats, Bill, on a great career in founding and building Greenbrier, and great working with you over the past decade and change; and to Lorie on the road ahead, and congrats and best of luck.

It seems like -- just let me hit on yields. I mean you've hit on a lot of -- on the build side, but on yields at $665 million backlog, 6,700 units, that puts the average at just under [100,000] down from [105,000] last quarter, [115,000] 2 quarters ago. And I know that there's always mix in everything that you talk about, but it seemed like you were just about to start talking about pricing and what's going on underlying that. Can you give us any further information on the mix or what's driving it to understand what core pricing is looking like underneath that?

Yes, Ken, this is Brian. I can give you a little bit of flavor on that. So when you're looking at higher ASPs, a lot of time you're looking at higher delivery of especially tank cars and things of that nature. In this particular cycle, what we're seeing is a very diverse order book. It's really every car type that you can imagine.

But in essence, you've got a lot more intermodal that are coming into play. You have a lot more covered hopper cars and you have a lot more (inaudible). And those typically have an ASP of somewhere under $100,000. So that gives you a little bit of a blend. We're still seeing strong tank car demand. We're still seeing some automotive demand despite chip shortages. But at the end of the day, what's really driving the ASP is the large volumes of what I'd call more general freight cars.

Great. So it sounds like a fairly good, solid mix across the board. So if you're -- just talk about -- you're scaling 16,000, 18,000 or, I guess, really 17,000 to 19,500, Where do you think your utilization level is at now? Lorie, I know you threw out some numbers real quick on the number of lines or facilities that you're at now, but where do you think capacity is versus that utilization? Is it still when you're fully up and running back to that low 20s, mid-20s?

And then, Lorie, it seemed like you were throwing out why with the backlog you can't or choose not to ramp quicker? Or it sounds like you were throwing out more safety? Or is it supply chain? Maybe just thoughts on why you can't ramp quicker.

Sure. So from a utilization perspective, I'd say we're probably somewhere in 70% to 75% utilized. I would say our production folks do an amazing job of at times even getting beyond what we think might be capacity. They can be quite creative at times. I guess I was just a little bit as if trying to get some color -- as to where there might be upside. We do want to be mindful as we're bringing people back. And even if there are people that have worked in our facilities before, it takes a little bit of time to get back in the groove of working in a safe manner and making certain that we're building quality railcars.

So we don't want to be pushing so hard that we push something until it breaks. I think, again, we're not the only company out there that is in the midst of ramping up to respond to improving demand, but also be mindful that we're doing that on the backs of our workforce. So we need to be mindful of that workforce and making certain we don't push too hard.

That being said, they're incredible men and women, and they do a great job every day. So that's part of why we're not giving explicit guidance because we think that as things move through the year, as more people get vaccinated, as the supply chain starts loosening up and improving, there can be a number of factors that will allow us to be more positive than the guidance that we've given, which is positive. It's growth off of where we have been. So I'd say that's kind of where we're going to and why we're giving the guidance that we've talked about.

Yes. I think every company that's talking about things today has to have some cautionary remarks to be responsible. We have done this a long time. It's hard to bring people back very quickly, and it's a shorter-term issue. We've got a lot of capacity. We've got a lot of design capability around the world. We're especially fortunate to have, in North America, a strong footprint in the United States and labor availability in Mexico. So I think personally, I'm very optimistic we can bring on cars, expand our lines with -- and continue to keep our safety statistics.

Let me just give you a couple of notes on safety. One of the reasons Lorie is focused on this is safety improves the welfare of our workforce. That is not only good as a thing to do, but it improves the workforce's productivity. Our safety statistics over the past 5 years have been awesome. We're way below industry standards, and we've been improving year after year. It is a core value of the company, and it creates shareholder return through productivity.

So what you're hearing from us is simply a little cautionary note that we don't want to push the throttle so far ahead that we hurt people and we bump into supply chain issues. We have the capacity, and if the order pipeline continues to be filled by the men and women who are doing that in leasing and commercial, working on their brothers and sisters in manufacturing, I think we can be overhead absorption and other efficiencies, economies of utilization. This company can really do very well as we've proven in earlier cycles.

Our next question is a follow-up from Justin Long with Stephens.

I wanted to ask about quarter-to-date order activity, just given we're 2 months into the quarter now. Have you seen any change in the level of orders and inquiries relative to what you saw in the fiscal fourth quarter?

And then last one for me is just on the tax rate. Adrian, I don't know if there's any color you want to provide on 2022, just given how much that's been moving around.

Sure. Hey, Justin, this is Brian. I'll take the first half of that question and then pass it over to Adrian. On the order rate, I would -- the way that I would lay it out is we're seeing it at very similar rates to what Q4 was. I don't see any slowdown at this stage and I think where the activity is very similar to Q4.

Great. And Adrian, on the tax rate?

Yes, we should see a return to a more normalized tax rate for fiscal 2022. So 27-ish percent in that range.

Depending on what happens in D.C.

Depending on what happens in D.C.

Thank you very much, everyone, for your time and attention today. And if you have any follow-up questions, please reach out to myself or investorrelations@gbrx.com. Have a great Tuesday.

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