Greenbrier Companies Inc (GBX) 2012 Q4 法說會逐字稿

Hello. And welcome to the Greenbrier Companies Fourth Quarter of Fiscal Year 2012 Earnings Conference Call. Following today's presentation, we will conduct a question and answer session. Until that time, all lines will be in a listen-only mode.

At the request of Greenbrier Companies, this conference is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Ms. Lorie Leeson, Vice President and Treasurer. Ms. Leeson, you may begin.

Good morning. Welcome to the Greenbrier's Fiscal 2012 Fourth Quarter Conference Call. On today's call, I am joined by our CEO, Bill Furman, and CFO, Mark Rittenbaum. We will discuss our results, and make a few remarks about the fiscal fourth quarter and full-year ended August 31, 2012.

We will also comment on our outlook for the 2013 fiscal year, and after that we will open up the call for questions. Please note that we have included additional financial information in our earnings release, and there is a slide deck now available on the IR section of our website that includes supplemental financial information. Starting on this call, we will no longer be discussing quarterly results and relevant comparisons to prior periods.

That information, as well as key factors for changes in the figures, has been captured in the financial slide of our earnings presentation. This is a new format for our earnings call. Our goal is to make the information clear and accessible, and we welcome all suggestions.

As always, matters discussed in this 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 2013 and beyond to differ materially from those expressed in any forward-looking statements made by or behalf of Greenbrier. Mark?

Thank you, Lorie. I would now like to take a few minutes to summarize our financial performance at a high level, as well as to elaborate on how we are thinking about the fiscal year 2013, that is now in front of us from a financial perspective. (Inaudible) one of the highlights for the past quarter and the year.

In fiscal 2012, we delivered record revenue in net earnings and cash provided by operating activities for the fiscal year were record $116 million. Our manufacturing segment delivered a record 15,000 units this year compared to 9,400 units in fiscal 2011, and are owned or managed plea of 230,000 railcars grew by 6,000 cars during the year. Despite our record setting year, however, our fourth quarter was below our expectations, and a number of factors contributed to this.

We delivered 3,500 railcars for the quarter compared to our expectations in the guidance that we gave of 4,000 units. This was principally due to the timing of delivery of 560 railcars, with an aggregate value of $50 million that we expected to curve by year-end, but were postponed due to delays and lease transactions, andone customer's acceptance of certain railcars. The margins on these cars exceeded our manufacturing gross margin for the quarter of 11.8%.

They were very profitable transactions. And all of these delivers occurred subsequent to quarter end. Additionally, ouractual tax rate for the quarter of 51% was significantly higher than our expected rate of around 34%. This difference was due primarily to a change in geographic mix of our earnings, and the difference or the delta's result of this was about $0.10 a share.

Also, we encouraged certain severance costs of nearly $1 million after tax during the quarter, and finally you will note that our gains on disposition of leased equipment, with only $100,000 pretax for the quarter, whereas on the average the gain for the prior three quarters was nearly $3 million per quarter. On a more positive, note for the fifth consecutive quarter the per unit sales price and backlog increased. Our wheels for refurbishment and parts segment continues to benefit from steadily improving business trends and repair and parts, howeverthe wheels portion of our business continues to be somewhat sluggish and with headwinds.

Overall, we continue to seek to enhance margins through efficiencies, and look forward to better mix of our repair business. Our leasing and services segment, fleet utilization was 93.5%, down 2% from the prior quarter. This was primarily due to the timing of some lease commencement dates on equipment built during the quarter, and added to our fleet that were put on lease in September. Excluding coal cars, we see continue to see favorable trends and lease rates.

We've identified four key focus areas or objectives for fiscal 2013. I'm going to touch on these, and Bill will elaborate on them. In response to market demand, we will continue to expand capacity for existing higher margin tank cars and ramp up production rates. This requires to also ramp up production rates on existing lines. We are -- we expect we will roughly triple our tank car deliveries in 2013 as compared to 2012.

We continue to assess and be flexible with capacity and production as we monitor market demand. Secondly, we will expand our product offerings, related to high growth areas such as oil, gas and the chemical industries and automotive industry. For example, we will look to expand our capabilities in tank car area with repair and service offerings, as Bill will touch on. We will also be entering some markets in the [hopper] market place related to the chemicals industry.

We will improve our working capital position and increase cash flow and pay down debt and Lorie will touch on the successes we have had and then bill will also touch on other opportunities that will overall. We will continue to improve our working capital position, increase cash flow, and pay down debt. Lorie will touch on the successes we've had here, and then Bill will also touch on other opportunities that will, overall.

So now looking forward to 2013, as we have said many times before, we expect our order flow to be nonlinear throughout the year. Given global economic and geopolitical uncertainty, we currently have less business visibility and more variability than in fiscal 2012. Based on current business trends and industry forecasts, we anticipate our new railcar deliveries in 2013 will be between 11,500 and 13,000 units.

Approximately 7,300 of these units are in our firm backlog as of August 31, and we expect the balance of the deliveries to come from orders that we received throughout the year. While this range is below the 15,000 units delivered in fiscal 2012, we anticipate the mix of deliveries will have higher average selling prices than 2012.

At the upper end of the delivery range, we expect that our fiscal 2013 revenue, adjusted EBITDA and earnings per share, will be similar to fiscal 2012, with the second half of the year being significantly stronger than the first half of the year, and it will build momentum throughout the year. Deliveries will be skewed to the second half. This is principally due to timing of ramp-up of a tank car production during the year, and the anticipated timing of demand for double-stack Intermodal railcars.

While the range is below 15,000, we do expect the mix will be of last year. We do expect, in manufacturing, that the mix will be better. It will have higher marine revenues, and this will be a little bit offset by a less robust European marketplace. In wheels, refurbishment and parts, we expect incrementally high margins, closer to what we realized for the year as a whole in 2013, as we improve our labor efficiencies and have a better mix of business.

The headwind in this segment continues to be soft in wheel volumes. This would be true, particularly, if we did not see improvement in coal loading, since a lot of wheel demand is driven by coal loading. In leasing and services our margin --- our revenues and margins should grow as a result of fleet additions, rising lease rates and growth in our managed fleet.

Looking to the SG&A, we expect will step down below that of the last two quarters for the first half of the year, and then step up again, modestly, in the second half of the year. We also expected the --- what we --- formerly known as the minority interest line item on our P&L will be higher in 2013 and 2012, as a result of continued ramping up of tank car production, principally, which takes place at our joint venture facility.

We expect our CAPEX, our net CAPEX to be $90 million to $95 million in 2013. Our depreciation to be around $45 million and our tax rate to be around 35%. I am now going to turn it back over to Lorie, and then we will turn it over to Bill.

Just as a reminder to everyone on the call, thecalculation of the diluted EPS can be complicated. We have added some disclosures in both our press release and in our supplemental slides, so we would be happy to take questions off-line regarding that.

This year, as Mark said, we have been very focused the balance sheet in addition to all of the earnings items discussed. For the fiscal year, our cash flow from operations improved to a positive $116 million compared to a negative $34.3 million last year. A similar improvement can be seen in our free cash flow, which improved to positive $45.6 million from negative $93 million last year.

These improvements came as we hit more of a stride on operations, and at a high level focus on improving our working capital metrics. We will remain focused on working capital, particularly, as we ramp up tank car production, and make production line changes that Mark discussed. We ended the year with $353 million of liquidity measured as cash plus undrawn credit facilities. Additionally, during the year, we reduced our total debt by almost $34 million, resulting in a ratio of debt to EBITDA of 3.1 times.

This is a considerable improvement from 5.1 times in fiscal 2011, and this came through a combination of debt reduction and EBITDA improvement. I will now turn the call over to Bill for his remarks on Greenbrier and the overall market.

Thank you, Lorie. Mark has touched on the issues that contributed to a weaker fourth quarter in fiscal 2012,a couple of major items there that we will not repeat. Despite all that we have a healthy beat in the company's fundamentals with backlog and dollar terms increasing and manufacturing margin up sequentially over the previous quarter.

As Mark also indicated, weaker coal traffic has contributed to lower margins in our wheel business during the quarter. While this is concerning, we have solid cash flows in that business, as in our total business, and have strategic initiatives which should drive stronger performance during the course of this fiscal year and beyond in that unit. As I will touch on a little later, we are very focused on capital efficiency, and GRS is the one area where we need to continue to improve return on invested capital.

We are in an unconventional recovery cycle this quarter and looking into 2013, with a few segments of railroad traffic being hammered. A good example is coal, which has a negative year-over-year decline in traffic, almost 12%. Trailing in the earlier year, grain, due to other weather and other selected commodities have also been weak. But Intermodal loadings, energy, chemicals, automotive, as well as other commodities, have all been very strong.

One must look closely, not only at car loadings, but because we have positive car loadings if you pull out that noise in many of these car types. But one must look at what this means for underling demand in all of our segments leasing, manufacturing, wheels and repair. Railroads continue to be strong, financially, and have made up most of the headwinds in their other businesses which they have experienced these headwinds in coal.

They have improved velocity. Their capture structure is excellent. Overall, visibility is more murky for all industry participants than this time last year, but there are plenty of reasons to remain very positive. Despite the tenor of this quarter's 2013 expectations in our press released, and in Mark's earlier comments, I remain positive that we are coming off a record year in cash flow, and going into this year with strong momentum.

We hope to capture operating leverage during the year; and we hope to match or exceed this level of performance next year in 2013 -- in the full 2013. As Mark has also commented, this will be back-end loaded. The reasons for the back-end loading relate to the capacity additions and business strategies we have adopted. We do believe it is prudent to recognize the economic uncertainty that exists in the global climate on a global scale, today, and our revised expectations are as much an index of the uncertainties that marketplace and in the US economy,as opposed to our own assessment of execution challenges.

Our strategy has been to grow lower cost manufacturing capacity, and to increase diversity of railcar product offerings, simultaneously. And to do that throughout all car types except coal. In this we have been successful. Over the last several years, we have increased our overall market share across a range of car types, and across all industry participants on an average basis.

This diversity reduces cycle risks and adds to diversity by adding diversity in our revenue stream. For example, as Mark has pointed out, we have increased our footprint in the tank car market, and will have the capacity to build up to normalized 20% of that market or 3,000 tank cars, annually, at the end of calendar 2013, ramping up to that level over the period between now and then. We expect very good margins on these energy-related products.

Near the end -- we are sold out on tank cars at those capacity levels well into 2014,anticipating and increasing our production rate from six per day at our Monclova facility to hit 16 per day near the end of calendar 2013. Again, solid reasons for our expectations in the second half of our fiscal year as we ramp up.

Similarly, our expansion at our facilities in Sahagun Mexico gives us the capacity to produce cars flexibly on up to seven lines in total between the two factories in Sahagun, adjacent to each other, at that location. Of our three plants in Mexico one is leased from Bombardier, one is owned, adjacent to the Bombardier facility in Sagahun, and one is a 50% joint venture with a prominent Mexico industrial partner, Jimsa.

This arrangement gives us not only product diversity, but reduces the risk in a low-cost base, but reduces the risk in a downturn. Because of our ability to react quickly to market conditions and to seize [Pfizer] operations, effectively, we have more flexibility going up into the cycle and also down in the cycle.

Diversity in products broadens the base of our business and gives us more resiliency to whether shortfalls and demand for individual product mix. We are positioned in all the growth areas cited in the traffic statistics that you probably review as we do. During our 2013 budget cycle, we expect to produce the following cars, automotive cars, both our AutoMax product line, which continues to have good momentum, but also 89 foot cars and two separate rack designs -- oneproprietary and one more industry standard.

In addition, we are targeting plastic pellet cars later in this year, and along with gondolas, which are currently running; boxcars, which are currently running; in our and our Sahagun facility. The market for double-stack cars will be less brisk in 2013 and 2012, according to conservative estimates. The demand continues to be solid, and we expect to continue to run that car type at Gunderson in Portland. That facility is ideal for the design due to tooling and location, and we can also run the car in our Mexico facility at Sahagun, if the need arises.

Marine backlog has modestly increased, and we continue to see strengthening in our marine business, not all of which is baked into -- that factor not being fully baked into our financial expectations. In conclusion, the picture in 2013 for our manufacturing segment is very solid. Turning to leasing for a moment,our leasing business is a very valuable asset to Greenbrier in these types of market conditions, and with this manufacturing strategy.

For leasing, our strategy is to drive more throughput through our leasing model and to use this as a tool to drive both more business into both of the other business segments. Our increasing strength and asset management has allowed us to do a number of transactions with large institutional investors who wish to own rail assets without having their own back-office, providing not only manufacturing margin, but downstream asset management fees and repair and wheel work.

We are examining closely, as Mark referenced, our use of capital and alternative ways to deploy and manage capital. For example, our return on equity in our leasing business is exceptional. We plan to focus on that business during the coming year to further increase it. Our debt-to-equity ratio there is modest. We're returning a high rate of return on capital in our plant equipment and our manufacturing operation.

Only in wheels and repair are we earning on balance less than our cost of capital. Since 2011, the Company has strengthened its balance sheet with equity increasing $180 million from equity issues and retained earnings. Our operating cash flow, as Lorie has mentioned, is very positive in 2012, giving us momentum and liquidity going into 2013And our liquidity is strong. We will continue to focus on the balance sheet and ways to increase shareholder value. Mark?

Thank you, Bill. I will now open it up to questions, please, operator.

Thank you. (Operator Instructions). Please stand by for our first question. Our first question comes from Allison Poliniak with wells Fargo.

Hi. Good morning, guys. The first -- I know you talked about the backlog. There are 7,300 firm. Should we assume that those are in the first half of the year, and then can you comment just in general? I know the quarter ended at the end of August, just in terms of the new orders you may have seen in the past couple months?

We didn't disclose, Allison, orders that were subsequent to quarter end. But we certainly have received orders and the inquiry level remains strong. I wouldn't want to disclose now, what we have had since we didn't put it in our release. But the inquiry level is strong. The backlog is fairly evenly weighted the throughout the year. As we mentioned,As far as the 7,300 cars, obviously, our overall backlog is stronger than that. The rest of that goes into fiscal 2014. The existing backlog is pretty even, perhaps, weighted a little more to the first half of the year.

Okay. Perfect. And then with Intermodal, are you surprised we haven't seen more orders? Is it overall caution in terms of what people are going to expect in terms of Intermodal for next year? If it's still strong,should we expect more coming through?

We expect orders for Intermodal, next year, at a level less than this year. There is still an interesting mix between eastern rail traffic and western rail traffic, international and the more domestic box reloading and domestic containerization. So the whole picture requires a more detailed analysis that it has and than previous years. In addition, there has been the absorption of all of the cars built during the past year, which was sizable. And finally, the coal traffic declined.

Since coal is such a large portion of railroad traffic has improved -- well, has contributed to the improved velocities, and, of course, the railroads have improved their operating velocity and service efficiency, in general. So it takes a bit of time for those forces to work through the system. However, this is an area we track very closely. We believe that we will be selling cars. And, in fact, we are anticipating that in our tactics for the year, and continue to build double-stack units at our Gunderson facility, today. And we will be building them to the early part of the year.

Okay. Perfect. Thank you.

Our next question comes from Bascome Majors with Susquehanna.

Good morning. You talked a little bit about beginning to invest a little more heavily in your lease fleet, and certainly, your leasing CAPEX rose pretty substantially, this quarter, as well as the size of your company owned fleet. How much of this is timing with, perhaps, the real [classifications]; and how much of this is true lease fleet investment? What is your strategy on diverting cash flow to that going forward?

Net leasing CAPEX for the year was about $40 million, which is also what we are anticipating for 2013. That is kind of what we consider a steady state. We might ramp that up a little bit this year as we will be in a higher paying tax position, and leasing will offer a tax shelter. That's not -- that's kind of a steady state for us. I think thatwhat we are referring to as more of our model of driving more leasing business through -- with manufacturing and repair and refurbishment, and tying that into our syndication activities, where we earn a high rate of return on those types of transactions, both holding the cars at shorter term and earning rent while we hold the cars, and then realizing the margins, which are attractive margins, on the sale of the asset, and then maintaining on ongoing management. To give you an idea, just the syndications that we did this year and the 6,000 railcars that we threw overall and owned and managed, just on the managed side, the present value of the future fee income was over $3 million. Right. Exactly. Of course that's not recorded, but that's just the present value of it.

Understood. Thanks for the color, there. Just as a follow-up, you talked a little bit about your flexible manufacturing footprint. With freight car demand, certainly, slower than it was earlier this year,have you already taken any actions, or what actions do you plan to take in your term to right-size capacity in certain car types, as you shift to those markets where, perhaps, demand is still pretty strong?

Our -- the only right-sizing that we would want to do if we were to consider it in North American manufacturing, the only possibility would be here in Portland, but that's the facility center for our Marine business, which is recovering. So, we can deploy labor over there if the Intermodal market is weak. We anticipate running double-stack cars through this fiscal year at Gundersen, and for that reason don't have any plans to downsize capacity. Right-sizing capacity to us means higher market share and investment in lower cost and efficient and flexible facilities. We are actually hitting our stride with the new capacity we are bringing on. As long as we can maintain the present market shares that we have, and we continue to target, I think we will have a very robust year. That will really help us a great deal as we continue to gain operating leverage from running longer runs, and from having these lower cost facilities as they ramp up in the third and fourth quarter, and even some in the coming quarter.

All right, guys. Thanks for the time.

Sure. Thank you.

Our next question comes from Peter Nesvold with Jeffreries.

Good morning, guys. First on the backlogs. You said the backlog was relatively well distributed throughout the year, and that SG&A was lighter in the first half versus the second half of next year. But it sounds like the EPS is going to be back-end loaded. So, why the mismatch between that? Why is EPS back-end loaded? Is it mixed in the back half of the year? Is it something related to the usual seasonality of margins or something else?

It would be that if our back -- it is primarily relating, Peter, to the ramping up of the production. We talked about tank car production, ramping up throughout the year. When we said we were going to triple deliveries anticipate tripling deliveries in 2013, relating to 2012, that is ramping up throughout the year. We are also bringing on capacity at our Concarril facility that will be back-end weighted. As Bill mentioned, as well,on the Intermodal side of the business, we are anticipating demand in the second half of the year. I am more currently building in anticipation of that demand. Those are the three primary drivers of why it would be might be back-end weighted.

Okay. That's really helpful. Second question,the industry backlog has gotten more and more concentrated towards tanks. Yours has to, it's just that you had the function of where the strength is in the industry. How do you manage the potential mismatch in capacity utilization? You talk about not wanting to downsize in any particular plant. But you had some plants they will be highly utilized, and other plants where you are going to go through periods where they will be underutilized. I'm just curious, from a manufacturing standpoint, how do you manage through that without suffering margins?

It is an excellent question. One of the ways we are managing it is to use our leasing company in this type of market, as we have done historically, cycle through cycle. You might recall, historically, our market share has risen during down cycles, but has diminished in up cycles. We still consider this to be an up cycle. We think it is an up cycle for a bundle or some basket -- the total basket of car types. By being able to produce more of these car types, and using our leasing company along with -- associated with our leasing partners, established leasing companies with whom we've got excellent relationships. We believe we can take positions in those cars and market them aggressively, moving from one car type to another. This is something we have done before very effectively. The leasing, retailing arm is incredibly effective. It is also a model that's been copied very effectively, and actually put on steroids by Trinity. I think it's a useful tool. It is what we intend to do to keep the factories full of good margin of products.

Don't take any of our comments, Peter, to mean -- you know, in a 30,000 car build year versus a 50,000 or 60,000 car build year, the dynamics are very different. But we believe we have the tools and the diversity that we would perform better throughout the cycle and at the down part of the cycle than the overall decline in demand would indicate.

We really have the capacity now, Peter, to operate through the cycle with a targeted market share. That the capability that we haven't had before. It has some real benefits as the cycle moves down. We can move from one car type, with these lines that we've set up, which are very flexible. We can move from one car type to another without a loss of learning curve. We anticipate using the capacity we have built. We don't see it as a negative. We see it as a very positive capability, and we do tend to deploy it through throughout the year. The trick will be to juggle the different car types, and be sure that we have backlog. That backlog may be shorter and shorter, but we have done that, very effectively, in the past. The leasing company, again, is our entry point with partners that we operate with in the industry, leasing partners, established leasing companies and also new institutional sources that we are, working with as part of our syndication effort.

I will sneak one last in if I can. Just on the tax rate, Mark. You talked about it returning to normalized levels next year. Can you just elaborate, briefly, what was the geographic mix shift that happened in the quarter that drove the higher tax rate? What precludes that from carrying over into the first -- into next quarter or two? Thank you.

That's a good question, Peter. The two primary shifts are we had more earnings in our European operations, and less in certain of our Mexican operations. While some of that may not be totally intuitive,we had the result of the higher European earnings as we had tax loss carried forward that we fully burned through during the year. And we have more taxable income than we would have anticipated there, and that partly drove up the rate. In part, due to the syndication that got postponed, our earnings that are principally at our Jimsa facility, were less than we would have anticipated. The part that flows up to our USoperations, only get -- only 50% of those get taxed. Because it is a flow through entity,we have 50% of it.

In essence only 17% of the US earnings are getting taxed. Since that was a lower amount that contributed to the higher rate. Then we had some -- a few permanent differences down in Mexico that we are looking to address, as well. So this -- we have had our tax rate fluctuate. We are aware of that. It is a challenge with the geographic mix of earnings. That is going to be an ongoing challenge given that we operate in three different tax jurisdictions, with three very different tax rates. We will definitely put more resource on. So there continues to be volatility, but we're going to more resource on what we can do to reduce that volatility and the overall tax rate.

Thank you.

Our next question comes from Art Hatfield with Raymond James.

Good morning, everyone. In your comments about in the release, and in your commentary on the call, you talk about for fiscal 2013 at the high end of the range, you make comments about revenue, EBITDA and EPS. Just so we are on the same page with you, when you make that reference to EPS being roughly the same as 2012, are you using the $1.91 when you think about that?

Yes.

Okay. Secondly, on the lease utilization, it was down a little bit. I know we are talking a couple hundred cars here and there. But can -- and you had attributed that to the coal business. Can you talk a little bit about the make up of your week fleet, and what -- where you think utilization may go over the next couple quarters?

We have -- our fleet is a pretty diverse fleet, art. We do not have much coal exposure in our own fleet, maybe 400, 500 to 600 cars. And you correctly point out that with a fleet of only 10,000 cars that when you have a couple of hundred cars going one direction or the other, it tends to skew the impact. Outside of that it is pretty diverse. We have less double-stacked cars than one might think given our lead position in double-stacks. But most of those -- most of that equipment is owned. Hoppers boxcars are significant portion. I would expect we're going to operate in the 93% to 97% range. The driver of that, really, is going to be our ability to get the coal cars back in service. The dip for the quarter,the couple of points down in the quarter, as we put some equipment in our lease fleet that was not cold cars that actually got into service right after the quarter end. That drove it down for the quarter but --So 93% to 97%.

Okay. Great. That's very -- that's great color, Mark. I want to go -- last thing, too -- I want to go back to the -- ask some questions about the manufacturing. You had a lot of questions about the implications of ramping up the tank lines. But just a couple -- a question on that. As you know, and you mentioned that your production lines are sold out into 2014. I think it is fairly common knowledge that's the case throughout the industry.

That's true of tank of cars, Art.

Correct. Yes. Correct. And I am addressing tanks, specifically. Given that environment, if I was in your shoes I would want to be paid a lot of money to ramp up production in order to either -- I guess the question is are you pulling forward cars that were actually scheduled for delivery later? Or are these new orders that you have taken on more recently where you are offering a quicker delivery people can get, otherwise. If so, do you feel like you are getting adequately compensated for ramping up this capacity?

Our margins in tanks are very good as reflect the market. If you compare us to our industry peers, who are more [peer-placed], [ARI] would be a good example. They are more concentrated in tanks, and they are obtaining exceptional margins. When you look at our manufacturing margins, keep in mind that two or three forces are moving on that. One is that we are getting a good margin and tanks. We are being well paid. In fact, our customers always think that we are being paid too much. In other car types, while we are building these facilities and where trying to get the economies of utilization in them,not every freight car is equal to a tank car in its profitability. We are focused on gross profit dollars per day and gross profit dollars per month, as opposed to gross margin percentage. And the reasons for that are, I think, just very obvious. It is difficult to talk about margins in the general context. You have to talk specific car types. We don't released margins on a segment basis.

I can assure you car -- that our markets and tanks are very good. That's the reason for the back-end loading this year, as we expand that capacity. We have all of that sold, and no, we are not pulling -- we are not pulling production forward. This is all new demand. You have seen Trinity announce it's going to increase its capacity. How long will this continue to go on? It looks like it is going to have momentum, solid momentum, going through 2014. They are making --I think all of us who have efficient factories are trying to expand the capacity to build more for the higher demand cars. It makes sense. I know it bothers some analysts that companies are adding capacity in this climate where is a conception of over-capacity. We are doing it, and we believe will be successful at it.

Last thing relative to that. If other car types come into demand and say the economy were to improve. And as you mentioned, you feel like you are -- we are still in the early stages of a railcar cycle, would this inhibit your ability to take on other car types if they were to come into demand?

Do you mean the tank our business? Are tank car business is --

No. Outside of tank.

No. In fact, the whole point of our manufacturing strategy is to have diverse facilities with the low cost footprint that can manufacture virtually any kind of car required by the marketplace, and that can -- those cars can be sponsored and inserted into the marketplace by our leasing company. It is a two-prong strategy involving both manufacturing capacity, diversity and leasing. In fact, the opposite would be the case. The versatility of being able to move from one car type to another, and focusing on the car types that come into demand as opposed to being a one-note samba -- just one car type. You know, a few years ago,we used, principally, Intermodal and Forest Products. By the way, Forest Products is starting to show some signs of life.

I don't see a lot of energy in 2013, but we expect to see -- you know, we expect to be continuing to build boxcars through 2013, at least on one line. It could be in 2014 where going to see some real demand in Forest Products, which would be a real boost to us,because we had very high market shares in that product area in the past. We need the facilities. We just have found it unacceptable in a market like this, in the past, that our market share declines. We've gone after the market share that we are capable of getting during a downturn, sustaining it during a more normalized market like I see this being today.

Art, if demand is stronger in 2013 then we are currently forecasting, because as Bill said earlier, we are tempering --some of our remarks are tempered by the uncertainty in the global economy, and so if demand does play out stronger than what you are currently seeing, then absolutely, we have the ability and the capacity to deliver more than 13,000 cars this year, and with a higher average selling price than in 2012.

Right. Thank you for the color.

Our next question comes from Sal Vitale from Sterne, Agee.

Thank you for taking my question.

Good morning.

Just a clarification if you can. I apologize if you've mentioned this already. But within your backlog, how many tank cars are within your backlog currently?

We don't break it out, Sal. What we did say is that our tank car backlog, like the industry as a whole, does go well into 2014.

Okay. What I am trying to get a sense for is given your guidance of roughly 11,500 cars to 13,000 cars, the high end of the range would be -- call it a 25% to 30% decrease from fiscal 2012. I am just trying to get a sense. Should we conclude from that that part of that is that you are pulling forward deliveries from fiscal 2014, so we should see 2014 be a lot higher than it otherwise would?

We are not pulling forward orders. The biggest driver because we also said that revenues would be flat for the year. As an example, Tank cars have an average higher selling price than our conventional -- the rest of our mix. But the other thing that is driving relatively flat revenues on lower deliveries. Another example is automotive cars have a much higher average selling price. They also have a lot more labor hours than, say, a frack sand car. We had previously noted that a lot of demand in 2012 was driven by frack sand and the hopper cars for that marketplace. While we are still building our frack sand cars, and we still see demand in that,we would expect to deliver less of those this year than in the prior year, and then again offset by a mix of higher labor content, higher selling price cars, but a lower number of units actually outside the door. Those would be the factors.

Our sales, Sal, are constrained, right now. And tank cars by the -- our production capacity per day, andon the previous question and on your question, if you take the information I provided earlier, current production at six, and we will want to add the capability of going up, normalized to, say, 14,000. That's fairly modest step up. The physical facility is already there. It's just a matter of executing on the ramp, itself. But it does take to ramp to those higher levels. You can do the math on that. It is relatively straight line curve between the end of 2013 and now.

And then just a final question, what do you expect the -- your capacity to be, say in a year -- let's call it the end of fiscal 2014 -- end of fiscal 2013. Sorry.

Hi, Sal, this is Lorie. I would sayit is tough for us. We always --A lot of people ask the question about capacity. We like to answer it from a theoretic perspective, just exactly based on what Mark was saying about depends on our mix. Historically, I think we said our theoretic capacity is around 15,000 or 16,000 with the increase in our tank car line. I think a theoretic could be --in North America could be closer to 18,000 cars per fiscal year. Again, going to be driven by the mix. So to the extent that we are building more of these automotive cars that take more hours, that the lower number of units to the extent that when Intermodal demand comes back, we can deliver those at a fairly high production rate similar to on the small cube-covered hoppers, which gets us closer to -- or two higher deliveries. On top of that we have our European operations which can range in deliveries, on an annual basis, from about 1,000 to 2,000 cars per year.

Right. So one thing that we could say to you is this year, we've developed, we've built -- North America delivered around 15,000 cars, and we added capacity at both of the Mexican facilities. So if we had the same mix, that capacity goes up. But it very much depends, as Lorie says, on the mix of cars.

Okay. Thank you very much.

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

Hi, good morning.

Good morning.

I wanted to shift gears for a second and ask about the barged letter-of-intent. $60 million is a pretty nice number, but what are the permitting and other conditions that have to be taken care of?

Well, the customer on that -- it has been in the newspaper a lot if you Googled Port Morrow project, you would see more information than you probably ever wanted to see on it. Generally, there are six or seven [coal] export projects going on in the Pacific Northwest. All of those are rail exports that require transit through communities, and the environmental lobbies have targeted coal, and, specifically, in the Pacific Northwest these lobbies are very strong. There is concern about coal dust contamination and congestion in urban areas. The project we are working on is a very interesting project with a company called Amber. An Australian company that has mining properties in Wyoming and Montana.

They are bringing coal in from unit trains down through Washington to Port Morrow, which is up the Columbia River in a rural environment -- an excellent port. We will trans -- they will transload it into barges, which we will manufacture along with another company in Portland. And then those will be contained and brought down the Columbia, through the urban area and exported through a port westward out of -- below west of the Portland metropolitan area. This takes out two of the arguments the environmentalist had -- coal dust contamination and transit through urban areas. It does not take out the definite targeting of coal. The coal will be exported, whether the Pacific Northwest exports it or not. The permitting, specifically, is Corps of Engineers. They have already announced that they are not going to take up any systemic programming effort to, or a review. They will, most likely, make their permitting decision on the facility that is being constructed tomorrow by sometime in December or January.

Our expectations would be this permit would be issued. And the circumstances surrounding it would -- are still in flux, because there is quite a lot of political activity going on around the issue. It depends on whether the Corps sticks to the position it has more or less telegraphed, or changes its view due to pressure from the EPA or the White House. Which pressure is not, at this point, being systematically applied.

Even if the permit is approved, just from a timing perspective, would you assume any of that would fall in FY 2013?

Yes, a portion of it. Not a huge portion. But a portion of it is budgeted in 2014.

So when you think about your commentary about at the high end of your rail car delivery guidance that revenue would loo look this similar, should we assume all the $25 million that's existing in the barge backlog is in that number, and then a little bit or none of the $60 million?

All of the $25 million that is in firm backlog. Yes. Some of that $60 million or that replaced by other demand.

Right, okay.

More tangibly, I suppose, we could exceed our expectations in marine if we accelerated production, and we still have the capacity and maneuver to do that. We don't have the firm order booked without any contingencies that would warrant our doing that, right now. We still have some manpower constraints due to rail car production over at our Gunderson facility where we build rail cars and those particular barges.

And it has been a while since we talked too much about barge, but that was typically margin business -- or it's margin accretive to the manufacturing segment; is that right?

Yes. It absorbs overhead and it is very -- it is very good margins, quite comparable to high end margins in railcars.

Got it. And on the refurbishment and parts segment, you said you were working to improve labor efficiencies. Really, what is the new initiative there, and there anything else you can do to improve that business in light of some of the challenges that are out there?

One thing we can do is to try to take more capital out of it. Plant rationalization, service design rationalization -- we have strategies in both of those areas. Another is to expand our concentration in downstream, energy-related products such as tank car maintenance and repair. There is quite a wave of demand coming in that area. Other builders, such as ARI, are very well established, but there is plenty of room for that competition that is on a regional network basis. There is plenty of room in that market, and we are positioning ourselves in that market, which would improve utilization in some of our facilities. Perhaps, redeploy assets from one facility to another. Those are -- that's kind of the highlights.

And in the past, and this has been a while, but you talked about taking some efforts to consolidate purchasing, things like that. Has that all been done or is there still work to do in terms of nondirect manufacturing cost-savings in that segment?

We still have a very robust, pointed directive on that. Since labor is a low component of the total value add, it is very important, but materials are much more important so materials is a very, very -- and transportation are two big cost items we have to manage. Last year we took -- I believe we took -- we made $15 million of improvements, so it is a fairly major piece of our strategic (inaudible), and this year we have the numbers baked in the budget to continue on that page. We will be working more on that, and I am believing that this wouldn't contribute to margin increases in the second half of our fiscal year. We don't have that in our baked-in budget outlook, though. And as many of these strategic things, we are making an effort to do them. We are targeting them, but we don't have them baked in our actual budget.

So when -- as you think about the budget in refurb and parts, are you essentially assuming that margins will be flat year-over-year?

Mark and I have different personalities. I am more optimistic than he is. Unfortunately, he handles the numbers. I would agree with the profile, but the affect of the strategy that we have had in place now for the last 18 months has been very dramatic. We just came away from our strategic board review for the year. We are really making some very good progress in the we've got. That's one of the big areas is -- materials, improvement, transportation and plant efficiencies, and getting operating leverage. The wrap on Greenbrier is we are not getting operating leverages to mix. It is all about this mix. We are trying to increase our market share. We are doing that. We don't get much credit for that. But we have more average middle-of-the pack margins, because we don't have the rich energy mix that more of the specialty builders have -- the [pure] car builders place have.

Right. Understand. Thanks.

Thank you.

Our next question comes from J. B. Groh with D.A. Davidson.

Thanks for taking my call, guys. I just want to get back the barge. Can you remind us what barge revenue was in the quarter, and what amounted to for the year?

It was a nominal for the quarter, J. B., and for the year as a whole it was nominal as well. Probably less than $10 million for the year as a whole.

J. B., There's a lot of activity in the Alaska market, and that should be hitting in the middle of the summer of 2013. We do see more activity in the barge business. As you probably recall, that business has hit revenue numbers as high as $80 million to $90 million when the markets are back to more normal perspective. Ocean-going barges --

And so it looks like these Morrow barges are smaller, correct? These are river barges?

These are river barges. They do anticipate that there would be follow-on business if they are successful in getting the permit. They really do have a different mousetrap. They have really addressed -- done a really good job of pre-selling this. And the opposition to this project is much, much less effective than the opposition to exports, in general, on coal. Coal is going to be exported though whether it comes out of the Pacific Northwest or goes down the Mississippi river and the gulf, or goes up through Canada. It's going to be exported. So it is all an oddity. If you look at the reality of it.,

And then I had a question on the gains on sale. Obviously, that was down, pretty significantly, from the pace that you were running at over the first three quarters. How should we view that? Is that a strategic decision on your part? Is the market just a little softer? Was the mix of cars different? How should we think of that?

It is definitely not due to the market being softer. In fact, one of our competitors noted they had a more robust quarter in this area. Really, as we have said before, as we sell out of the leased [lead] it is both opportunistic and the timing of some of these things. Again, we are also balancing that with our own tax bill. But it is really due to timing. Unfortunately, that makes it hard for us to give guidance quarter-to-quarter. I would tell you for 2013 that we are anticipating less activity in this area. And again, it is not due to the market. It's that we are going to want to hold on to more of this equipment, and so we just have less than we are anticipating this year.

And interesting question just came in offline. Somebody asked if I was eating a muffin or a bagel. It was a muffin.

Was that from downstairs?

I won't name names.

Why does he want to hold them? Does he think the leasing market will be better than selling?

Yes, part of it, again, is we repositioned the fleet, and again part of it is managing our own tax bill too. When we sell assets out of the fleet, we realize nice gains, but we also realize very nice tax gains. As I mentioned earlier, our tax position has shifted.

Okay. Thanks for your help.

Thank you.

Our next question comes from Mike Baudendistel with Stifel Nicolaus.

Thank you, and thanks for taking my question. I just wanted to ask about the Canadian national press release in the quarter where they talked about their fleet replenishment efforts going forward, and it looks like they have -- wondering if you could talk whether they are a major partner of yours, and whether if you expect to repeat orders directly, as a result of that plan?

I haven't had a chance to absorb that, and they are a very valued customer. But we don't have the material -- That's not on our radar screen as a material matter right now.

Okay, and then on the guidance you have for --

it will be certainly good news for all the car builders. I haven't had a chance to digest that or get up to speed on what we might be doing, specifically, about it.

Okay. And then on the unit guidance that you are expecting in 2013, sounds like you have quite a bit of orders you are expecting in there too, or at least some. What type of economic scenario are you envisioning either for just GDP or freight volume growth, and also interested in your expectations for Intermodal volume growth and 2013, and realizing it is certainly an area of uncertainty. Are you expecting a similar growth pattern in 2013 as 2012?

Right. Well, Intermodal has actually been up 5%, which is a very nice growth rate. As Bill had talked about earlier, what did someone -- offset that as the improvement in velocity of the railroads with lower and softer coal loadings, and then, as well, a little bit of sitting on the sidelines by customers looking for more clarity and less uncertainty in the market. I think, at a minimum, we would anticipate continued Intermodal growth in that 5% range and possibly higher.

Overall, though, the GDP question, the -- they keep revising these numbers. The third and so-called final estimate of Q2 was 1.3%, slower than a 2% growth rate. We are generally looking at slightly under 2%, maybe more conservative US GDP growth rate. Maybe in the 1.7% rate. But that may be too pessimistic.

One final one, in your repair business is Hurricane Sandy the type of thing that typically damages railcars and spurs some incremental demand in your repair business?

Yes, regrettably. It is a very big national disaster. It has the technical consequence of causing congestion in the rail network, ties up freight cars and damages equipment. There will be some unknown amount of fallout from that. And generally, you raised a good question. We had a very light winters, overall, last year. Weather being unpredictable, if we have a tough winter it will affect a lot of these statistics, velocity being one, coal loading being another. Given the weather patterns that we have seen and then the crop failures for the drought, we don't expect to repeat in 2013. We hope not, but who knows? Weather can be a big unknown. Generally, last year was a mild winter as far as it affected operating profiles on the railroads.

Great, those are the questions I had. Thanks very much.

Thank you.

Our next question comes with Tom Albrecht with BB&T.

Good morning, everybody. Bill, we are closer to lunch here while you wrap up your breakfast. A couple things, now that you are two-thirds of the way through this first quarter, can you give us a little guidance help for this Q1 ? And secondly, and I apologize if you addressed some of these things. I got so many calls today. Gains for fiscal 2013, you have had three years in a row where gains have been in the $8 million neighborhood. Do you have some thoughts on gains for this year? And then I have a small follow-up.

On the last questions on the gains, first, we do anticipate them being a little bit less in 2013. It is, again, difficult to forecast with precision on that, because a lot of this is opportunistic in nature. What we talked about a few minutes ago, is that it is definitely not due to any slow down in the secondary market. That's still quite robust marketThe reason we anticipate it being down, at this point, is more management of our internal tax bill. They generate nice book gains, but even greater tax gains. As far as how the year unfolds, what we see is it being sequentially higher as we go throughout the year. We said we expected being significantly weighted toward the second half of the year, and then, even within the first part of the year, we expect the second quarter to be greater than the first.. So we haven't given exact guidance on the first quarter, but I hope that I can lead you and it will be significantly less than 25% of our full year guidance.

Tom, on the leasing company though, that company is a real jewel. It has got very low leverage. It does add complexity to our financial picture. We are looking at some pretty exciting stuff in our leasing company,building on the momentum we have this year, and some of the institutional relationships we have developed, such as the Green Union transaction. We are looking at shareholder value, capital out -- a return on capital, and so we could look at some interesting strategies with our leasing company that would be very compatible. We are being to work with our good leasing customers in the network, and increase volume and perhaps address debt and other things, as well, and improve our capital efficiency. That could have a P&L affect if we pull the trigger on some of those things.

So, Mark, on the production then or deliveries, given you just did 3,500 and the year is going to build more to a crescendo, the fiscal year. Is it conceivable that Q1 could be under 3,000 deliveries?

Yes, I believe that is correct. Again, part of that is that we are also, as Bill mentioned earlier, we have production going on in the double-stack market that is anticipation of demand in the second half of the year. We are producing at higher rates than that, but the timing of when we would expect a delivery would be deferred until later in the year.

Okay. And my last question is on the tank production you expect this next year, what's an approximate mix between petroleum and chemical-based customers? There are so many different dynamics there.

Well, we -- a lot of our companies -- a lot of our customers are leasing companies. Tom, we haven't really released that distribution on -- there is a lot of dynamics in that we probably would be better to consider what we would like to released on that off-line and have a follow-up on it.

As you recall, Tom, we got into the tank car market with a leasing company that helped us get into the market. So again, that's what a lot of our order book is tied to.

Thank you very much, guys.

Thank you.

Our next question comes from Brad Delco with Stephens.

Yes. Great. Thanks. Good morning, guys. Mark, I think most of my questions actually were just addressed, but I want to make sure I understood something, or maybe get some more color on. So earnings it sounds like cadence should improve throughout the year, but it sounded like the backlog has more deliveries toward the front half -- the back half versus -- I guess on the 7,300 or so in the backlog, currently. What I am trying to reconcile is you have the units that weren't delivered in fourth quarter that now go into first quarter. What are the offsets to, I guess, that being a positive contributor to earnings in the first quarter? And how do you improve on that going forward?

I think the biggest offset, because you are absolutely correct, I said we deferred delivery of 560 cars that were higher margin cars were getting deferred to the first quarter. So that is absolutely a positive. What is a negative is that, again, that probably the biggest offset to that is the production of double-stack cars that we would be producing now that would not be sold until the second half of the year. That would be one of the bigger offsets. And then the timing of some of our lease indications, you will note, that we did say that these indications that were deferred occurred in the first quarter, but will also have actual production in the first quarter than we would expect to be syndicated in the second quarterI am not, necessarily, trying to indicate that our earnings per share in Q1 will be down from Q4. But, perhaps, it would be closer to that type of a range than it would be to 25% of the full-year earnings.

Okay. When you make that comment, what are you using as a base for Q4 given there are one-time items?

Our actual recorded earnings of $0.26 cents a share, when I just made that comment

Okay. That's great. I think you addressed my second question. But when you say you are building double-stacked cars in anticipation of delivery in the back half of the year, you don't have an order for those? Or are we -- I don't want to read incorrectly. Are you building those on spec right now? What exactly is the message there?

We are building them and putting them into leasing service. We are taking some delivery in anticipation of orders during the -- we study this market very closely. We believe that there will be orders or positioning for lease opportunity in 2013. One of the things Mark has talked to is our tax basis. These cars built before the end of December would have bonus depreciation, and we would like to capture that and put it in service to address in the tax planning, we have the financial capacity to do it. And we believe we can place those cars in lease or (inaudible) or we can sell them.

And this is not an uncommon, particularly, with double-stacked cars, as well as the timing, the demand would be weighted towards the front end of the calendar year in anticipation of the overall demand, the double stacked demand for the year. And that with our own production that we would build cars and place them into service, such as we are doing now.

Okay. Well, appreciate the color, guys. Thanks for the time.

Thank you.

Our final question today comes from Ken Hoexter with Merrill Lynch.

Hi, Ken.

Hey. Great. Good morning for you. Good afternoon for us, now. As a quick follow-up, I know it has been a long call and you get a lot, but I want to go back to manufacturing for a quick second. You talked about how it is not a peak build yet, but you still see some growth going. Yet, you are obviously pulling out some capacity in the next year. Can you talk about how you would think about how you prepared for that, I guess, as you ramped up, and obviously, you have been bringing on new lines at your facilities. It seemed like the last year you were always talking about the launching of new lines. You filled up your book. You raised the rates. Was this step unexpected for you then? I am wondering why you would have such a pause in the midst of the growth rebound.

I'm sorry. Let me correct any misunderstanding. We continue to see the lines that we have ramped up as being very valuable, and we intend to operate them. When we ramp the line up, we constructed the facility, so we have the lines. So it is just a matter of whether we use them or not use them. My only point, earlier, was we have a flexibility with our plant network. It was designed to be very flexible. So if we do get caught in a downward sweep of the market, and our business can be cyclical,I don't expect that sweep, a bad sweep, or anything like that. I think it is a more normalized market. If you look at the four to five-year forecast, they are all reasonably strong, a lower build rate this year then next year and deliveries. However, if we were to get into that, then we can quickly size these facilities down and run off working capita, l and have a very positive cash flowed during a lull in the market. That's the only point I was making. In fact, what we have here is a situation where the recovery is very spotty, very mixed; but it is still a recovery. It is very specific car types. We expect to have to have shorter backlogs in some of these car types, and be selling on very short horizons, using our leasing fleet to move from car type to car type to position the cars in the marketplace. This is a purely tactical description. We will try to get a better description up on the system if I've confused you.

So tactical, but I want to understand was this something you would have -- in a recovery, just going through a normal car cycle. As you get up on the lines back ups and then you filled them up would you -- I guess I am trying to understand, did you anticipate then, this step back in terms of flattening? I guess it's not a step back. I guess you are looking for flat performance -- well, yes, I mean sequential down tick in year-over-year cars. I guess that's what I am trying to get at. Did you know that was part of the plan to step back like that in terms of number of cars?

Stepping back, you mean for the volume. Well, the number of cars has come down, but the volume -- the revenue volume and the margin is more like flat as opposed to down. The tanks are a big driver of all of this. We we have a production rate of six a day. We are intending to more than double that. We have those cars sold, so we better be able to produce them. We intend to produce them. We want to have that capacity on stream and have smooth execution. We are going to go beyond that, doubling that to by an additional four cars. The other capacity that we built in the [Skoon] plant will be deployed on a number of the other higher growth areas, automotive and downstream petroleum price like plastic pellets. We think that we can keep that plant full. We need to capacity But the tanks are a part of the capacity picture that is probably muddling it up a bit.

The biggest difference between the 13,000 cars and the 15,000 cars this year, Ken, is -- or 15,012 is due to the mix. Our plants would be fully -- you know, we would be using all of the capacity, but as we talked about earlier, some of the cars we would be building this year, the prices would be, maybe double the price of the cars of last year. They are double the labor hours. So that leads to the flattish manufacturing revenues. It is not that we are downwardly revising, other than as a Bill noted, overall for the industry in 2013. The industry forecast (inaudible) build, it's slightly smaller 2012.

I appreciate the explanation. That is real helpful. Let me take it one step further, if I may. When you look at the future of the tank car demand, the rails are very hesitant to make long-term capital investments, because of the nature of when pipelines get built and the like. How do you think about that investment that you make now to ramp up on the side over the next few years?

I think of it this way, very simply, that tank cars have been a stable part of the US industrial base. The operating protocol for tank cars has been sound. It is another market in which we should participate irrespective of the cycle. We should be targeting, at least, a 20% market share. So that is how I see it. As far as the pipelines and how the arrearage are going to deal with the additional traffic, there is a lot of momentum behind this. There is a lot of talk, of course, about if we are building too many tank cars for oil, and is that going to go away when the pipelines come. We do think that there will be, at some point, a surplus capacity created in the system. On the leasing side, one has to be cautious on the tank cars that are not least for a long period of time with a stable customer. The market is a very good, solid market. We think our targeted market share is appropriate to our company's size and our capabilities in Mexico. The other advantage that we have is we are not leasing in competition with some of the established leasing companies.

There are three big ones that don't have their own manufacturing facilities. So with at least two of those and a third emerging one, we have formed a strong alliance and are building cars for them. We don't -- has a lot of synergies in association with those kinds of customers. So, it is a challenge for us, and there are, obviously, execution risks and bumps along the road. Basically, I will go back to what I said, earlier. We have always had double the market share in a downturn than we had in upturns. I don't see any problems defending our market share. We are just targeting taking a fair share of the market during the upturns by having enough flexible capacity to take that share. That's what we have been doing. Look at the deliveries that Greenbrier has had. We are selling 15,000 cars this year. We expect -- depending on mix -- to sell a comparable amount of capacity next year. And the future should be pretty good. I wish we could achieve the -- and I hope we can achieve the -- some of the consensus, but I think there is all kinds of uncertainties going on in the global economy, and we tempered our enthusiasm, somewhat just because of that realism.

Appreciate the time. Thanks for the info.

Thank you.

At this time, this does conclude the question-and-answer session. I would like to now turn it back to our presenters remarks.

Thank you very much, everybody for participating, today. We know we had a long call, and we appreciate your interest. As always, if you have follow-up, we look forward to it. Thank you. Bye-bye.

Thank you for joining today's conference. That does conclude the call at this at this time. All participants may disconnect.