Greenbrier Companies Inc (GBX) 2022 Q4 法說會逐字稿

Hello, and welcome to the Greenbrier Companies Fourth Quarter of Fiscal 2022 Earnings Conference Call. (Operator Instructions) At the request of the Greenbrier Companies, this conference call is being recorded for 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, Andrea. Good morning, everyone, and welcome to our fourth quarter and fiscal 2022 conference call. Today, I'm joined by Lorie Tekorius, Greenbrier's CEO and President; Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer; and Adrian Downes, Senior Vice President and CFO.

Following our update on Greenbrier's performance in 2022 and our outlook for fiscal 2023, 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.

As a reminder, 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 2023 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

And with that, I'll turn the call over to Lorie. Good morning.

Good morning. Thank you, Justin, and good morning, everyone. I appreciate you joining us today. Before returning to our results, I want to commend our business units and all our colleagues in production for completing another year of outstanding safety performance.

Our recordable injury rate declined by nearly 16%, and our DART rate was down 17% from 2021. This is the second year in a row with double-digit improvements following steady improvements over the past 3 years. This impressive performance occurred at the same time we increased our global workforce by 35% and during a 50% rise in enterprise-wide production rate. In North America, our production rates increased by 75%.

Based on this higher production activity and workforce growth, it's obvious why we're proud of our safety record. It demonstrates the importance Greenbrier places on the safety and well-being of our workforce.

Now turning to our business performance. The fourth quarter was Greenbrier's strongest operating quarter of the fiscal year. The growing impact of our leasing platform, including continued strong syndication activity helped drive record quarterly revenue against a volatile macroeconomic backdrop.

Our performance this quarter highlights the value of our integrated business model as well as the strength of our leadership team. Aggregate gross margins and manufacturing margins continue to trend higher as we realize operational efficiencies and absorbed the dilutive impact of pass-throughs tied to input cost escalation.

Our North American manufacturing business navigated a massive boost in output during fiscal 2022. In a traditional upcycle, such a significant increase in hiring and production rates would be daunting in a year of emerging COVID variance, ongoing supply chain disruptions and railway congestion, the ramp navigated by our manufacturing team is historic and heroic.

I extend my thanks and the thanks of our Board and leadership team to all of our colleagues working on Greenbrier production lines around the world. And as we look across the globe, we know the economy faces headwinds from the Russian invasion of Ukraine with winter approaching, escalating energy prices together with record inflation levels and rising interest rates present an unprecedented set of conditions.

Economic forecasts predict a recession in Europe. We are focused on managing our operations on the continent through current and future challenges. We're realistic and responsive to the economic conditions in Europe, yet there's still a sense of relative optimism in the rail freight sector. Traffic volumes are holding up well and rail freight is playing an increasingly important role in the transportation of critical goods in response to the invasion of Ukraine.

Europe's wagon supply chain has largely recovered from the disruption caused by the war, albeit with higher prices in most areas. Railcar delivery projections for the next few years are strong and back to prewar levels. Our work with our customers has brought more certainty to our production costs and our sales pipeline and backlog are growing again as new order inquiries remain stable.

In our maintenance service business, we continue to gain momentum demonstrated by increased margin. The action plan to increase efficiencies in our repair facilities, which included increasing head count in certain U.S. locations is beginning to improve results. We're cautiously optimistic about the moderating U.S. economy and expect recent economic volatility to ebb in calendar 2023, as the Federal Reserve smooths its pace of additional interest rate hikes.

Sustained monetary tightening may impact employment and economic growth, but we remain optimistic that the rail equipment sector can withstand a gradual cooling of the economy. Supply chain issues have improved but nowhere near results. Continuing challenges include the impact of ongoing congestion on the rail lines, a shortage of available labor in certain geographies and limited access to certain components. We expect these headwinds to diminish during the second half of our fiscal year.

Overall, commodity prices, excluding energy, have declined from recent peak levels, which in the main, should be favorable for rail freight traffic in the months ahead. As we enter the first quarter of our new fiscal year, we're encouraged by the momentum in our business.

As a team, we're focused on a few key initiatives that are rooted in our core values of quality, customer service and respect for people. These initiatives are focused on continuing our manufacturing excellence, expanding our services business to reduce the cyclicality of Greenbrier's financial results, ongoing investment and development of our workforce, continuing our commitment to ESG and ongoing policy advocacy to ensure our perspective on issues is understood and addressed.

I plan to discuss these initiatives and our business outlook in greater detail at Greenbrier's first Investor Day scheduled for early February. We look forward to sharing more details on this important event soon. Greenbrier's Board and leadership team balanced capital deployment between organic growth opportunities, short-term, high-return internal projects and returning capital to shareholders.

For the last few years, our primary focus has been on safeguarding the business through liquidity preservation until economic stability normalizes. As a result of recent stock market volatility and to drive long-term shareholder value, we believe there may be a near-term opportunity to repurchase shares through our existing share repurchase authority at what we perceive are discounted levels.

Share repurchase activity supplements the growth initiatives I highlighted and demonstrates our continued balance sheet strength, cash-generating abilities and focus on returning value to shareholders. When I consider the value creation opportunities for Greenbrier, I see a very attractive offering, a stable and reliable dividend, assets that are strong cash generators, a healthy business with robust market share and a growing leasing and services platform.

As we enter fiscal 2023, I'm highly confident in our team's ability to seize the opportunities before us and to navigate unforeseeable challenges. And now I'll turn it over to Brian to discuss the railcar demand environment and our leasing activity.

Thanks, Laurie, and good morning, everyone. In Q4, Greenbrier secured new railcar orders of nearly 4,800 units valued at $620 million. We delivered 5,800 units in the quarter. For the fiscal year, we received global orders of 24,600 units or $2.9 billion, resulting in a book-to-bill just north of 1.2x. Our diversified backlog currently stands at nearly 30,000 units with a total value of $3.5 billion.

As a reminder, our new railcar backlog does not include 2,300 units by more than 170 million that are part of Greenbrier's railcar refurbishment program. Our refurbishment program is another example of why freight rail is one of the most environmentally friendly mode of surface transport. Despite macroeconomic concerns, Greenbrier's order pipeline remains strong, and we continue to see a healthy railcar orders from all categories of customers.

Also, there is the emerging strength of our leasing business. Total railcars and storage have been at cyclical low for the past several months, indicating high fleet utilization. Of the 276,000 railcars in storage, over 50% have been idled for over 1 year, suggesting that a large portion of the fleet in storage are retirement candidates.

We expect industry utilization to remain strong into 2023 as scrap cars are expected to exceed new railcar deliveries for the third consecutive year, causing the North American fleet to shrink. The combination of a shrinking fleet and decreased railcars and storage increases railcar utilization and adds pressure on fleet availability in North America. These dynamics have contributed to a continued strong North American leasing market for new originations and lease renewals.

And the significant expansion of our lease fleet over the last 18 months has proven to be well timed. Our leasing team continues to perform ahead of expectations as we scale this business with an owned fleet totaling 12,200 railcars at the end of the fiscal year. This represents a 40% year-over-year increase in the size of our own fleet.

Lease pricing on renewals has increased into the double digits in fiscal 2022, while our fleet utilization remained strong at just over 98%. We are very focused on protecting our economics through our lease agreements and by hedging our debt balances to factor for interest rates.

During the quarter, we funded $75 million of our $150 million term loan upsize and fixed it via an interest rate swap. All leasing debt is nonrecourse and has a remaining term of just under 6 years on average. Also, during the quarter, we finalized a renewal of our leasing warehouse debt facility to extend the borrowing term from 3 years while reducing pricing levels. Syndication activity in Q4 totaled 1,300 units capping a very busy fiscal year.

As a reminder, the allocation of syndication revenue moved from manufacturing to our Leasing and Management Services segment during fiscal 2022 in order to provide greater transparency on the positive impact of our enhanced leasing strategy in our financial reporting. Our end goal remains to grow Greenbrier's consolidated margin.

Greenbrier's management team is experienced and our business model is flexible. We are energized and optimistic about our ability to serve our customers and to perform well in our markets. This leaves Greenbrier well positioned to successfully navigate these next stages of recovery from the pandemic and the prevailing forces at work in the economy at any particular time.

Adrian will now speak to the highlights in the fourth quarter.

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 represented the strongest quarter of our fiscal 2022 year as a result of increased deliveries, strong syndication activity and improved operating efficiencies. I will speak to a few highlights from the quarter and full year and provide a general overview of our fiscal 2023 guidance. Notable highlights for the fourth quarter include record quarterly revenue of $950.7 million, an increase of nearly 20% from Q3.

Aggregate gross margins of 13.4% reflect improving operating efficiencies, higher deliveries and strong syndication activity in manufacturing and leasing and management services. Selling and administrative expense of $68.8 million is higher sequentially, reflecting increased employee-related costs and consulting expenses, the timing of incentive compensation trends with the cadence of earnings.

Interest expense of about $18 million as a result of higher borrowings, increases in interest rates and our floating rate revolving facilities and foreign exchange expense. Forming [ph 0:14:45] tax rate of 35.1% was higher sequentially due to the mix of foreign and domestic pretax earnings and discrete items. We also recognized about $1.3 million of those costs, specifically related to COVID-19 employee and facility safety.

Net earnings attributable to Greenbrier of $20 million generated diluted EPS of $0.60 per share. EBITDA of $88.8 million or 9.3% of revenue. Notable highlights for the full year include deliveries of 19,900 units, an increase of over 50% from the prior year. Net earnings attributable to Greenbrier of $47 million or $1.40 per diluted share on revenue of nearly $3 billion.

Net earnings attributable to Greenbrier grew by 45% in 2022. EBITDA was $231 million or 7.8% of revenue. EBITDA increased by nearly 60% versus the prior year. Greenbrier's liquidity increased to $690 million by the end of Q4, consisting of cash of $543 million and available borrowings of $147 million. We generated nearly $180 million of operating cash flow in the quarter.

The increase to liquidity and operating cash flow reflected better operating results and improvements to working capital and a receipt of $76 million of the tax refunds associated with the CARES Act. The remaining tax refund of roughly $30 million is anticipated to be collected in fiscal 2023 and is in addition to Greenbrier's available cash and borrowing capacity. We have no significant debt maturities until 2026 because of the strength and flexibility of our balance sheet, we continue to be well-positioned to navigate market dynamics.

In fiscal 2023, we expect liquidity will continue to grow due to higher levels of cash from improved operating results, improved working capital efficiency and increased borrowing capacity resulting from more railcars placed on our balance sheet. On October 21, Greenbrier's Board of Directors declared a dividend of $0.27 per share, our 34th consecutive dividend.

Based on yesterday's closing price, our annual dividend represents a yield of approximately 3.9%. Since reinstating the dividend in 2014, Greenbrier has returned over $395 million of capital to shareholders through dividends and share repurchases. Our Board of Directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long-term shareholder value.

As Lorie mentioned earlier, we believe there are near-term opportunities to repurchase shares at while we perceive our discounted levels. Greenbrier has $100 million authorized under our share repurchase program, and we will use this capacity opportunistically based on fluctuations in the price of Greenbrier shares and within the framework of our broader capital allocation plan.

Shifting focus to our guidance and outlook. Based on current business trends and production schedules, we expect Greenberg's fiscal 2023 outlook to reflect the following: deliveries of 22,000 to 24,000 units, which includes approximately 1,000 units from Greenbrier-Maxion in Brazil. Revenues between $3.2 billion and $3.6 billion. Selling and administrative expenses are expected to be approximately $220 million to $230 million.

Gross capital expenditures of approximately $240 million in leasing and management services, $80 million in manufacturing and $10 million in maintenance services. Proceeds of equipment sales are expected to be approximately $100 million. We expect to build and capitalize into the lease fleet approximately 2,000 units in 2023. These units are firm orders from leasing customers and are included in backlog, but are not part of our delivery guidance.

As a reminder, we consider a railcar delivered when it leads Greenbrier's balance sheet and is owned by an external third party. We expect full year consolidated margins to be in the low double digits. Our business units and our colleagues, throughout Greenbrier have achieved many accomplishments, particularly during a year marked with unforeseen challenges.

Our experience management has a track record of success in identifying and seizing opportunities while navigating unexpected events. Greenbrier is supported by a robust backlog, which provides strong earnings visibility. Our liquidity and balance sheet strength to protect our business during volatile times and positions us to be opportunistic.

As we turn the page to the next fiscal year, we are well positioned to enhance shareholder value into fiscal 2023. And now we will open it up for questions. Andrea?

(Operator Instructions) And our first question will come from Justin Long of Stephens.

Maybe to start with the comment you just made Adrian on margin expectations in fiscal '23. I believe you said low double-digit gross margins. If I look at what you reported this quarter, you were close to 13.5%. So can you give a little bit more color on the full year outlook and why it might imply something below where we're exiting this fiscal year?

Yes, we had a very strong Q4, and there's still some uncertainty heading into next year with supply chain issues with the war. So we would see margins improving in the back half of next year. And typically, our business is back half weighted in terms of our earnings and volume.

And Justin, this is Justin. The one thing I would say is I think bear in mind that it takes a lot to move margin percentage on a full year basis. So we do expect to see strong performance, and we don't believe that being in the teens is out of the question as we head towards the back half of the year, but it's not going to be necessarily a full 12 months just based on what we see at this point.

Got it. And maybe similarly, I was wondering if you could give any color on the cadence of production and earnings over the course of the year? And then just one other thing I wanted to clarify on the revenue guidance. Does that include the 2,000 units that you're expecting to build for the lease fleet or exclude that?

It excludes that. So we don't recognize revenue on that because those assets stay on our balance sheet.

But I would add, they're generating revenue through our leasing operations. So it's just not the manufacturing revenue and gross margin, but those assets are deployed and generating lease returns.

And then on the cadence of activity, we do see about kind of a 40% to 60% split first half, second half and probably maybe a 45-55 actual delivery split given that some of our back half production is more heavily weighted towards syndication. So this is a matter of we're building more cars through our lease model. They're going on to the balance sheet in Q1 and Q2, and then we'll be syndicating a strong volume of that in Q3 and Q4.

Got it. And that 40% to 60% was an earnings-related comment?

Yes.

The next question comes from Matt Elkott of Cowen.

So your backlog ASP is the highest you've ever had. It's also up 11% from a year ago. Is this mainly the pass-through of higher commodity prices or is there also like a mix effect? And what I'm trying to gauge, I guess, is how those core pricing factor in? Is it possible to gauge if it's a positive or a negative? I know it might be a bit more complicated than that. But just any color on the ASP at the end of fiscal 2022 would be great.

Yes. Definitely, Matt. I'll start, and then Brian will actually speak from his knowledge and experience. But I would say that definitely, there is some escalation of pass-through and materials and things like that embedded in that pricing, although we do have a profitable mix that we are building in there. It is a little more weighted towards general freight, but we have shown a tendency to be able to build those types of cars profitably, especially the more niche products like automotive and boxcars. But I would also say, I think, and Brian, please step in about core pricing, but it's definitely been improving throughout the year.

Yes. Core pricing has improved. I think you hinted that. It's partially mix, partially pass-throughs. There's less tank cars being produced these days, a lot more general freight cars. But as Justin points out, a lot of the general freight cars are everything from coil steel to wood chips, DDGs, grain, a number of different things, and some of those are very profitable assets as well. So it's -- the ASP is more a product of the mix. And then certainly, the pass-through has some impact as well.

So Brian and Justin, I think to Justin's comment about it's still a more freight heavy mix. But is it more freight and heavy than last year or less? I mean, just relative to last year, is the mix more towards freight or tank relative to 2021 – 2022?

It's a good question, Matt. It's definitely more heavily weighted towards freight car going into 2023.

And then your managed fleet declined a bit, I think, down 3% from last quarter. Is there anything meaningful behind that?

I think it's more a matter of occasionally, we do…

Transition.

…transition away from certain types of customers and sometimes the overall product isn't necessarily the best fit, but we still are excited about that business and do feel that it's a good long-term value add for Greenbrier.

And then just on the general demand environment, we're hearing about tightness in multiple types of freight cars and even shortages in some kind. Can you just talk maybe about the different types of freight cars and where you're seeing the biggest tightness and the highest demand?

Yes, it's Brian again. We're seeing tightness really across all sectors. One of the big phenomena is going on right now, of course, the low river levels in the Mississippi River, which is putting a lot of strain on grain type of assets. But it's really broad-based across all groups. I'd say probably the area where it's still not as robust as it has been in the years is on the tank side. But that's really because we don't have any big catalyst like a big ethanol build-out or a crude-by-rail build-out, you're more servicing kind of the general market at this stage with chemicals and upstream and downstream products. But it truly is and truly remains very broad-based across multiple commodities.

Brian, do you get the sense that this -- the tightness, the shortage in certain types of cars is going to be alleviated before it starts affecting the rail network in a negative way?

Yes, I don't think so. If I understand your question correctly, no.

And just maybe one final question to Lorie. Do you still feel the same about share repurchases after today’s call?

We consider just canceling today's call, actually.

I would have thought you would have scratched off that comment, but... Yes.

Well, I think in today's volatile market, it's important to reinforce that our Board of Directors and the leadership team thinks about how we deploy capital. And just a reminder that we do have authorization to repurchase shares if we feel like it's a good use of our resources.

The next question comes from Bascome Majors of Susquehanna.

If I look at the delivery guide of, call it, 23,000 at the midpoint, and I add the 2,000 that you're planning to build for your own lease fleet. Can you share -- I mean you talked about 1,000 in Europe -- I'm sorry, 1,000 in Brazil. Can you share what the Europe assumption is in there roughly? And kind of walk us to what you're assuming that you'll build in North America this year?

Yes. So I would say that Europe is around kind of in that kind of 3,500 range, kind of give or take, but that's what we're seeing at this point with 1,000 in Brazil. You could say kind of we're heading towards about 20,000 cars being delivered out of North America, and that would imply about 22,000 cars are being filled.

Okay. And is there a share gain assumption in there or just thinking about your normal kind of 40%, give or take, percent market share, I mean, that would imply a North American industry build of somewhere in the 50,000, 55,000 range, which I think is a bit higher than most people are expecting. Can you walk us through kind of how to reconcile those two?

Well, I think we would say that our delivery guidance is based off of our backlog and our production schedules. And we don't have any explicit market share assumptions baked in or any gains. It's more just a matter of this is the way our production schedules have laid out. This is what we see for the year. And we are pretty robustly booked in Europe and North America. We do have a little more open space in Brazil at this point. We don't necessarily say that we're seeing -- going to expect a much railcar build north of 50 in 2023.

But bear in mind, 2022 and 2023 do have a pretty substantial increases and delivery expectations for North America. So again, it just comes back to -- these are the orders we have and the orders we've been able to take and it's helpful to have a 30,000 car backlog.

I was going to say that is proof the point of why we continue to say that having the backlog we have provides us great visibility. I think we're actually booking some production now into calendar 2024, and we're feeling as good as you can feel from a manufacturing perspective, having a lot of the ramp behind us. So that gives us confidence as we look across our production lines.

On the -- to the ramp, that leads into my next question. Can you talk about where you are on labor or any other investments to get to the run rate that gets you to where you need to be to hit the guidance that you've laid out there? Just curious if we're 80%, 90% of the way there or even closer.

I would say that we are fairly close there. I mean we are not immune to the challenges that are being faced by a number of companies across the United States, in particular, with attracting and retaining a skilled workforce, more so at our U.S. facilities. We're very fortunate in our facilities in Mexico that we have good workforce.

We've got good relations with our workforce so that as the business activity fluctuates, we're able to bring back that solid workforce and do it in a way that we keep our workforce safe, we continue to build quality railcars for our customers.

We're also looking at things that we're doing for our workforce across the board of thinking about our wages appropriate based on where we are with inflation and other market drivers. So I think we're doing a number of right things, but it is definitely a -- I would say that we're pretty much there in bringing back the bulk of the workforce, but we'll continue to have some challenges.

On the margin front, can you talk a little bit about the gap in margins between your different locations, be it Mexico versus the Central U.S. versus Europe. Just curious if there is an addition by subtraction angle here as you bring margin up in one of these regions, it does impact the consolidated margin pretty nicely.

I would say that we're fortunate that we have fairly steady margins at our various facilities. They each have benefits that they bring to the consolidated results. We're mindful of the car types that we build in different locations, leaning on the strength of that particular location, whether it be facility layout or workforce, maybe robotics or access to componentry. I don't -- there's not one particular footprint or production line that carries the day or drags things down.

And I think we're seeing steady improvement in Europe. I mean it's been a little bit more difficult for that group just because of the recent impact of the war and the step-up in cost. But again, the team there did some great collaboration with our customers to work through something that I don't think that environment has seen maybe ever. I think that we're a little bit more accustomed to some of that volatility and input costs here in North America. So I don't think that there's any one particular area that's a drag or a superstar.

And last one for me. Can you talk a little bit about the syndication market has a higher cost of capital changed either the depth or makeup of who you're seeing bidding on railcars that you put into those channels? And just any thoughts about how that could evolve and whether or not the rising lease rate has been sufficient to keep up the expected return for the people who are playing in that market?

Yes. This is Brian. So it's a good question. And we haven't seen any change in liquidity in the syndication market. Keep in mind that the way that we price deals that we have interest rate adjusters. And so we tend to keep up with the debt -- the rising debt costs and the players that we've partnered with are long-term players in the marketplace. And so as we look forward, we continue to see a robust and really unaffected syndication market.

Next question comes from Allison Poliniak of Wells Fargo.

Just Lorie, I just want to get your view here from the customer perspective, it seems like an unusually rational freight car market in terms of demand in this cycle. Is your sense, this is really just a replacement-driven demand market or do you feel like there's some incremental adds in certain verticals? Just any thoughts there.

It is unsettling to see how rational things are going right now, which makes it almost feel irrational. I would say that it is broadly replacement demand, as Brian, I think, indicated in his prepared remarks, we've been -- the North American market has been scrapping at a pretty rapid clip. I think that our customers and Brian can add on to this, but our customers certainly have more that they would like to put on the rails, but they're struggling with the railroad performance and some of the fluidity issues there.

So I think as some of that settles out, we might see a little bit more growth and focus on increasing transportation via the rail. That's one of the positive spots, I would say, in Europe is they are definitely much more focused on the transition to goods on the rails as opposed to the highways, which is why we're seeing that expectation. We're seeing that strong pipeline with our customers as they're looking to grow and grow their fleet as well as to replace some aging equipment. Brian, anything you'd add?

Yes. No, I just would piggyback off what you said. It's one of the reasons why we continue to remain pretty excited about the long-term future of rail is there's a tremendous amount of pent-up demand. The rationalization is being brought on by the lack of fluidity in the rail network today. Otherwise, we probably would have been in the typical hockey stick cycle that rail is so accustomed to.

And so as railroads continue to improve, which they are, and as velocity continues to improve, it's going to give them an opportunity to increase their market share. And for customers who want to use rail, which there is quite a number of them, to be able to add assets. And I think that's where our long-term play is even through these turbulent economic times.

And then I just want to ask on maintenance. It seems like a lot of the benefit that you had in the margin this quarter was really Greenbrier driven less so on the volume side. Can you maybe talk a little bit more? I know you said that there's some, to some extent, labor. But what you're doing there and just how we should think of that margin through cycles? Just do we take a step up here from the efficiencies you're seeing or sort of too soon to tell on that side -- just any thoughts?

Yes. I would say that the maintenance business is probably the toughest part of all of our businesses. I'm proud of what that group has been able to do by focusing on the workforce that we have, thinking differently about how we bring them in, how we train them. This is -- it's difficult work oftentimes in not the most glamorous locations or conditions.

As we grow our fleet of railcars that we own and manage, having a strong network is going to be important as we maintain our own fleet, granted that you can't always do that because it depends on geographies. But I'm pleased with the progress that they've made, and I know that they're very focused on continuing their efforts.

The next question comes from Ken Hoexter of Bank of America.

This is Adam Moskowsky [ph] on for Ken Hoexter. Maybe just a question on the backlog. It is up, but it's the second quarter of sequential declines. Maybe just talk a little bit about that softening and some of the end market demand exposure there.

I think it's more a matter of not necessarily a weakening environment. It's more a matter of us continuing to exercise discipline when deals don't necessarily meet our hurdle economics. And bear in mind that we're booking out 9, 10, 11 months on certain lines, 15, 16 months on other lines. And so because of that robust nature of our backlog, we're not always able to hit our customers' delivery requirements. So we continue to see robust activity. We saw that in fiscal Q4. We continue to see robust activity subsequent to that and continue to kind of expect to see that for the future. Brian, I don't know if you have any other color?

Yes, absolutely. I mean first of all, I agree, Justin. We're being selective at this stage on what orders we consider. But I can tell you that the cadence of orders continues to be very much in line with previous quarters. So and the sales pipeline inquiries continue to be strong. So we're still fielding a tremendous volume. In fact, in some respects, record volumes in quarter for opportunities. But given that we have a nice long backlog and we have visibility well into our next fiscal year, it's an opportunity to be a bit more selective as well.

And then maybe just a broad question on the expansion of the services business to reduce cyclicality. Thinking over the next couple of years, where do you see sort of an optimal mix? And what are some of the decisions on your end that go into that?

Sure. So we have the fortunate position to be able to be talking to a broad number of customers. I'd say our leasing and services team have done a great job in the short amount of time that we have had the GBX leasing facility or platform created where we're developing that diversified portfolio of railcars. So I think as our markets remain and demand remains diversified, that will give us a great opportunity to continue to add.

We do have the flexibility because of our capital markets group to be able to syndicate if we don't feel like it's the right time to be adding to that lease fleet. But I think from a long-term perspective, I would see just a steady step-up in investment in those leasing assets because they do provide that stability in cash flows and earnings, that's a nice offset to the typically more cyclical manufacturing. Again, right now with manufacturing, we're having some nice steady rational activity, so that's great. So I love it, if both manufacturing and our leasing platform continued on this upward momentum, neck and neck with each other and stable.

And then just one last one. You mentioned most of the order activity is replacement demand. Is it a matter of congestion scrapping, when are you viewing this to maybe inflect more into new activity?

Yes. So this is Brian. A lot of the activity today is -- I would say it's twofold. There's a lot of scrapping going on as people have seen over the last couple of years, high scrap prices and an aging fleet, particularly when you think about box cars and the old 70-ton plate sea box car fleet and you think about the gondola fleet they continue to have very high attrition rates over the next 4 to 5 years.

So that tailwind will continue. You're also seeing some uptick in biodiesel facilities and other organic growth. So it's not just at this stage for the record, replacement demand, there is some organic demand going on as well. Where we see the real opportunity long-term is as the railroads become more fluid, we have a number of shippers that want to do even more. Some of it for ESG compliance reasons, some of it just because it's still the best mode of transportation.

And with the river situations becoming what they are the Colorado River and mainly the Mississippi, which is really the workhorse of the U.S. There's opportunities for railroad to continue to increase share and they gain more and more fluidity. So again, we see it kind of a 3-legged stool.

The next question comes from Steve Barger of KeyBanc Capital Markets.

Just want to make sure I understand the margin commentary. We should expect manufacturing gross margin or consolidated gross margin in the first half will run below what you saw in 4Q?

We didn't give any explicit guidance, Steve. And again, we're kind of focused more on the overall of fiscal '23 without giving explicit guidance that we think it will be low double digits, possibly weighted more towards the back half. But as I think about it, we finished the fourth quarter pretty strong. We're happy with what we've done, and we expect to continue to improve on what we've done. Now again, you've seen us in years past, right? There's going to be some volatility when you start stepping down into the segments, manufacturing versus syndication activity versus our maintenance activity that makes those consolidated margins maybe not always be on a perfect trajectory.

And the one thing I would add, Steve, is with the high volume or a large percentage of our railcars that are being produced that are going on to the balance sheet, we have less syndication activity occurring. So we do not see a step backwards in manufacturing margins. I want to be very clear about that. But the more profitable syndication part of our business is going to be back half weighted, and that's what's driving the earnings cadence.

Yes. Understood. I certainly am happy to hear that you're not going to step backward in manufacturing margin. But just to help level set expectations, when you look at mix, and obviously, there's challenges in Europe right now and just general economic conditions, would you expect first half '23 EPS can exceed last year's first half of $0.70?

Yes.

And Lorie, you said Greenbrier's assets are strong cash generators, but operating cash flow was negative over the last 2 years. And after net CapEx, free cash flow was lower than that. Are you saying positive operating cash flow and positive free cash flow after net investment are achievable this year?

Yes. That is what we believe.

And finally, just one last one for me. SG&A as a percent has been volatile over the past couple of years, the top line has moved around. If you hit your revenue goal for the year, how should we think about SG&A spend in dollars for fiscal '23?

Yes. We were guiding to $220 million to $230 million for the year obviously...

I think I missed that.

Our last question will come from Justin Long of Stephens.

I just wanted to circle back on some of the questions around manufacturing margin specifically. So it sounds like you're not expecting a step back. I'm guessing that's for the full year, but is there any color you can give on the cadence of manufacturing gross margins that you would expect similar to what you said on consolidated margins?

Yes. This is Justin, and I'll evidently go out on the limb on this one. So we do not see a step back in manufacturing margins at all and especially in the first half of the year, and we do expect to see some expansion ideally kind of throughout the year. So I think you saw a relatively large step-up from our fiscal Q3 to Q4.

And with the majority of the ramp behind us, this is more a matter of continuing to take cost out of the system, fine-tune the efficiencies. And at this point, we expect to make positive progress on that activity throughout the year. Now the thing we've learned over the last 2 years is there's a lot of volatility in the world. But that's what we see based on our production schedules, based on our backlog, and it's going to be a good year.

And last thing I wanted to ask about was noncontrolling interest. That's something that can swing the numbers around a good bit. Any thoughts on where you could shake out in fiscal '23.

Yes. That's a good question, Justin. And it really, as you said, it is -- definitely can be very volatile depending on our production activity in Mexico and what's going on in Europe. So we would see it being probably higher than it was in fiscal 2022, but not necessarily doubling or tripling at this point. Our production plan is relatively stable in Northern Mexico. And then it's a matter of kind of getting into the earnings ramp in Europe that we expect.

And Justin, just to be clear, would also be the timing would be impacted by syndication timing.

Congrats on the quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to Justin Roberts for any closing remarks.

Thank you very much, everyone, for your time and attention today. If you have any follow-up questions, please reach out to Investor Relations at gbrx.com. We are very excited about the year and are proud of what the team has accomplished in the last 12 months. Thank you, and have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.