FreightCar America Inc (RAIL) 2012 Q1 法說會逐字稿

Ladies and gentlemen, welcome to FreightCar America's first quarter 2012 earnings conference call and webcast. At this time all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note that this conference call is being recorded. An audio replay of the conference call will be available from 1PM Eastern Daylight Time today until midnight Eastern Daylight Time on June 8th 2012. To access the replay, please dial 800-475-6701; replay passcode is 246557. An audio replay of the call will be available on the Company's website within two days following this earnings call. I would now like to turn the call over to Joe McNeely, Chief Financial Officer of FrieghtCar America.

Welcome to FreightCar America's first quarter, 2012 earnings conference call and webcast. Joining me today are Ed Whalen, President and CEO, and Ted Baun, Senior Vice President, Marketing and Sales.

Before we begin, I'd like to remind everyone that statements made during this conference call related to Company's future performance, future business prospects or future events or plans, may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FrieghtCar America's 2011 form 10-K for a description of certain business risks, some of which may be outside of the control of the Company. They may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, with a result in new information, future events, or otherwise. Our 2011 form 10-K and earnings release for the first quarter of 2012 are posted on the company's website at www.freightcaramerica.com.

I'd now like to turn the call over to Ed Whalen, our President and CEO.

Thank you, Joe and good morning. Welcome to FreightCar America's first quarter 2012 earnings call. I'm pleased to report a very strong quarter for FreightCar America. We produced a six-sequential quarterly increase in railcar deliveries, revenues and operating income. In fact, our first quarter results reflect the highest number of cars delivered in any quarter since 2008.

To recap order activity, 1,244 railcars were ordered in the first quarter of 2012, compared to 4,027 cars ordered in the first quarter of 2011, and 4,481 railcars ordered in the fourth quarter of 2011. We delivered 2,613 railcars in the first quarter of 2012, which compares to 875 railcars in the first quarter of 2011, and 2,489 railcars in the fourth quarter of 2011. Our backlog of unfulfilled orders at March 31, 2012 was 6,934 railcars, compared to 5,206 railcars at March 31, 2011, and 8,303 railcars at December 31, 2011. Industry-wide there, were 12,473 railcars ordered and 16,816 railcars delivered in the first quarter of 2012, and as a result, industry-wide backlogs decreased to 60,191 railcars at the end of March.

When compared to the first quarter of 2011, North American commodity loadings in the first quarter of 2012 were down 1.1%, driven by coal and agricultural products, while loadings for other commodities remained positive. Coal loadings decreased by 8.6% and intermodal loadings increased by 3.8%. Demand for coal was adversely impacted by several factors in the first quarter. This winter was unusually mild in much of North America. Natural gas prices hit their lowest level in 10 years, electric power consumption declined, and rail velocities improved significantly year over year. US electricity generation, where coal competes as a par generating fuel, was down 4.1% in the first quarter, when compared to the same quarter in 2011.

Overall, US coal production was down 6% in the first quarter of 2012, versus the same period last year. The Energy Information Administration's latest estimates for coal stock piles as of February 12, is 187 million tons, 45% above the 10-year average and 16% above the year-ago stockpile level. Indications are that stock piles have continued to increase since then, and could exceed 200 million tons by the end of this spring, approaching the highest levels recently experienced. On the positive side, US coal exports remained strong in the first-two months of 2012. The latest data available indicate that US coal exports were up 5% year over year, to approximately 18 million tons at the end of February.

For the full year, coal exports are forecast to be 100 million tons, versus the near-record high of 107 million tons in 2011. Industry wide, the overall number of railcars and storage reached roughly 299,000 as of March 31, 2012, an increase of 26,000 railcars when compared to the end of December 2011. We estimate that the number of coal cars in storage also increased from about 9,000 railcars at the end of December 2011 to approximately 35,000 at the end of March, exceeding recent peak levels experienced in 2009. For our service segment, first quarter repair volumes improved over the prior quarter, as maintenance activity increased. We expect that repair volumes will continue this positive trend in the near-term.

While we are focused on optimizing operations at our existing repair shops, we also continue to explore possible growth opportunities in this business, including expanded our facilities and services offerings. It is clear that during the last six quarters, we experienced a rapid turn around in market conditions, as industry demand first stabilized, then expanded and drove improvements, in both our orders and backlog. Our revenues in the first quarter reflect the strong backlog we had at the end of 2011. However, as the first quarter unfolded demand for coal declined significantly. Despite the softening demand, we received orders for 1,244 cars -- coal cars and other railcar types, in the first quarter.

We believe that coal demand will remain under pressure in the near-term. Some of the factors that caused this recent reduction in demand, namely low natural gas prices and improved rail velocities, are expected to persist for some time. Other factors, such as weather, are hard to predict and can have a significant impact as well. The Energy Information Administration, however, estimates that electric generation from coal will decline about 10% in 2012. Given the decreased demand for coal, we don't anticipate significant aluminum coal car orders over the next few quarters, and currently expect the first-half of 2012 will be stronger than the second-half. Despite current market conditions, we remain focused on factors within our control, optimizing performance of our facilities, and strictly managing our costs throughout our organization. Furthermore, our strong balance sheet will allow us to weather the current, uncertain demand environment, provide us the financial flexibility to be strategically opportunistic, and manage risk leading to long-term value creation for our shareholders.

Now I would like to turn the call over to Joe McNeely to address our first quarter financial results in more detail.

Thank you, Ed. Consolidated revenues were $219 million for the first quarter of 2012, which were $147 million higher than the first quarter of 2011, and $32 million higher than the previous quarter. The increases on revenue reflect a higher number of railcars delivered and higher average revenue per railcar. Net income for the first quarter of 2012, was $9.7 million or $0.81 per diluted share, compared to a net-loss for the first quarter of 2011 at $1.3 million, or $0.11 per share. Net income was $8.5 million, or $0.71 per diluted share, in the last quarter of 2011. Manufacturing segment revenues for the first quarter of 2012 rose to $210 million, compared to $63 million in the first quarter of 2011, and $179 million in the fourth quarter of 2011. The increase reflects higher railcar deliveries and increased revenue per-railcar, due in part to product exchanges and higher material costs.

In the first quarter of 2012, operating income for the manufacturing segment was $22.7 million, or 10.8% of revenues, which was $22.5 million, or 10.5 percentage points higher than the first quarter of 2011, and $6.2 million, or 1.6 percentage points higher than the prior quarter. The increase in operating income reflects the increase in deliveries, product mix and gain-on-sale of leased railcars. Services segment revenues for the first quarter of 2012 were $8.6 million, which was $500,000 lower than the first quarter of 2011, as increases in part sales were offset by decreases in repair revenues. Services segment revenues improved $800,000, in comparison to the prior quarters, as repair volumes increased. Operating income for the services segment was $700,000 in the first quarter of 2012. This was $400,000 lower than the first quarter of 2011, but $200,000 higher than the prior quarter.

Corporate costs for the first quarter of 2012 were $7.4 million, these costs were up $2.3 million from the first quarter of 2011, but down $200,000 from the prior-quarter of last year. The year over year increase reflects additional compensation costs, due to the growth in the business and consulting related expenses. The effective tax rate in the first quarter of 2012 was 38.8%. The value of railcars under lease was $44.4 million as of March 31st, 2012, which was down $10.3 million from the end of December 2011, due primarily to sales of railcars on lease. Our financial position continues to be strong, with no outstanding debt, and cash on hand at the end of March 2012 of $145 million, up $41 million from the end of December 2011. Working capital, excluding cash, decreased $16 million from the end of the fourth quarter of 2011, as the increase in inventories and receivables was more than offset by payables. We have no current plans to draw upon our revolving credit facility. This ends our prepared comments and we're now ready to address your questions.

(Operator Instructions).

Peter Nesvold, Jefferies.

We looked at the RSI data last month, it said no aluminum coal-cars were ordered. If I did back of the envelope math right, it looks like you got about 1200 orders in total for this particular quarter, can you tell us what was ordered in the quarter?

Sure

Global car types or any of the color around that.

Essentially it's mix of coal and other car types.

Okay, but not aluminum?

There were no aluminum cars ordered in the first quarter.

How many more used cars do you have in the backlog right now? Is that included in the headline number that you show in the press release?

Can you, what do you mean by units? Are you talking about the rebuilds we mentioned last quarter?

Yes, exactly. It said in the release there were, let me just find the words here, there were a handful of used cars that were delivered in the quarter.

That was just a small number of cars that we took in on trade and prior deals over the last couple years. It was a very small number.

But then the rebuilds, though. Are they included in the backlog number or not?

Yes, they are.

They are, okay. So, of the cars that are in backlog right now, can you tell us, what's the split between new and what's in there for refurbished?

No, we don't give guidance at that detail level.

Okay, and last question, how, how should we think about SG&A costs going forward? Whether in absolute dollar terms, or as a percent of revenue, and in the event that orders continue to be weaker in the second-half of the year, how much flexibility is there to bring that back down?

Again, as you look at us, our SG&A doesn't trend with S percentage of revenue, it's more of a step function. It is up over the first quarter of last year, given the Improvement business, and composition of consulting costs. But, it is essentially flat with last quarter.

Michael Gallo, CL King.

Good morning. Congratulations on the improved results. Question I have is just on other car types. Where do you stand on getting regulatory approvals on the new intermodal regs?

We have regulatory approval on the new intermodal unit right now. It's continuing to have some supplemental testing, and it should be available for production later this year.

And any -- can you give us any update on, are you getting a lot of interest, what's just general customer feedback been so far?

We've had quite a bit of interest in our intermodal products over the last several months.

That's something you expect should be ready to go, or you'll be ready to manufacturer it and sell it in the back-half?

Yes, we should be ready in the second half of the year to do that.

Brad Delco, Stephens.

I think you guys made the comment on the rebuild. I guess my assumption is, given the improvement in the ASP in the quarter, and what you said last quarter was that these rebuilds would be lower revenue per-unit, did we see any being delivered this quarter?

There were no rebuilds delivered this quarter.

I think I can do the math on what's remaining in the backlog then. And then Ed, just to dig in to one of your comments, you said you expected the first-half of 2012 to be stronger than the second-half. I guess I was just wondering if I could get more detail on what you're really commenting on there, is that order activity? Or is that, you know, your specific financial performance? How do we need to read into that?

I think the answer to yes -- is yes to both those questions. I think we're going to see somewhat-less robust order activity in the second half, as well as, we expect our financial performance will be higher in the first-half, versus the second-half.

Got you, appreciate that. And then, the question I have too is, looking at the backlog, and then looking at the orders, do you anticipate sustaining your current build rate, or if there are any thoughts to adjust it downwards to have some prolongness, if you will, in that backlog?

Again, our build rate is determined by our customer's requirements, and we will continue to build to those requirements. So, I guess that's all I can say about that one.

I guess, maybe, Joe, you typically say, the backlog represents -- most of which will be delivered over a certain timeframe. Is most of the backlog for 2012, or did some of it go over to 2013?

As I said last quarter, some of that does spill over into 2013.

Okay, and Joe, maybe my last question, you mentioned some consulting-related expenses. Do you mind just commenting on what the, I guess the nature of whatever consulting agreement it is?

It varies, it's nothing specific. It covers a number of broad-car types from systems and other related items, but nothing specific.

Okay. And then maybe my last question, I apologize. I know you guys have commented on looking at growing the service business, obviously a very impressive balance sheet, any update on what the M&A market looks like or what activity is like in that market?

We're continuing to take a look at that area, as soon as there's something to report, we will advise you.

Eric Crawford, UBS.

Good morning, guys. Couple questions, one, just quick point of clarification, were any of the first quarter orders, for rebuilds or to your leasing subsidiary? I know in the past you've disclosed if they were rebuilds, I just want to make--

There were no rebuilds in the first quarter orders.

Okay, and were some of those orders to your leasing subsidiary?

I do not believe so.

Okay, thank you. And then, real quick, just on the -- with the increase in coal cars in storage, are you seeing any customers altering their planned delivery schedules?

No, we are not.

Steve Barger, KeyBanc Capital Markets.

Good morning. In terms of 2Q mix, are deliveries going to look like 1Q, plus or minus?

We don't give out that specific guidance, Steve.

Okay, well, in terms of your comment about making less in the back-half, is that, is it fair to think that's due to changing mix as you shift more to rebuild, as you proceed through the year, or why would that be the case?

I think it's a combination of, it's basically a product mix and volume issue.

So, when -- and you have visibility in your production schedule. When you say a product mix, is that fair to think that it's more rebuild in the back-half, or is it a different car type that has less margin?

I think it's fair to say there's more rebuilds in the second half. That's correct.

Sal Vitale, Sterne Agee.

Good morning, gentlemen. Just a few quick -- first a clarification, if I could. So, in looking at the deliveries for the quarter, just to make sure, so there were 2,226 total deliveries, and then there were at least deliveries of 387. So, the gain on sale of railcars, so that's $948,000 gain, that was related to 387 cars, correct?

No, actually, the, under the accounting, those were cars already in our lease fleet. Those were delivered and put on lease in prior years.

The 387?

No, the gain, the cars related to the gain-on-sale.

Right, so whereas the 387, they were already in your held-for-sale?

No, those cars were manufactured and put into the lease fleet in the first quarter.

Got you. Manufactured and put into the lease fleet, and that gets you to 2600. Okay, so then I guess the right way to think about the ASP would be the total manufacturing revenue, divided by the total cars delivered of 2,600, right?

That would be a correct calculation.

Yes, so just looking at it that way, basically, I see some -- a bit of an increase there, sequentially in the price. Did you mention earlier that, that was more related to mix, rather than pure pricing increase?

You know, there's a number of things going in that, and mix has a big piece of that, as different car types have different material components, and that changes, as we talked in the past, changes the average revenue per car.

Okay. And then, on the rebuild, the 3,300 units, you -- order, you received in Q4 for rebuilt units, are you saying that none of them delivered in 1Q, and you would expect them, I guess, the total amount to be skewed towards the second-half?

That's correct.

Okay, so then we should see, at some point, we should see a sequential step down in the ASP, just by [dent] of that, correct?

That's correct.

Now, in terms of the profitability, though, the profitability was actually very healthy. You know, how do we think about that in terms of, once the deliveries mix includes some of the rebuilt units, in terms of absolute dollars, should we expect any step down in that type of gross profit per car that you generated in 1Q?

Sal, as we talked before, we don't give out specific financial guidance, and in this case, there's a lot of factors that go into that, in terms of product mix and different car types that get delivered.

Let me ask it a different way, if I look at gross profit per-car, if I'm looking at it correctly, I'm dividing the gross profit divided by the 2,613 cars, which includes the leased cars that were sold, the cars sold into the lease fleet rather, I calculate $9,082 gross profit per car. How do we think about that going forward? Should we think about that start to decelerate, or rather, was there anything specific to 1Q that drove up that number?

There's nothing specific in 1Q that drove up that number, but we don't give guidance, future guidance.

Okay, that's helpful. And then, if I could turn back to what you said earlier about the increase in the overall railcar fleet. It seems like the entire increase, sequentially from 4Q to 1Q, was due to coal cars. Do you expect that to -- I assume it's increased further since the end of the quarter. Do you think you start to level off in terms of that storage number at some point in the next couple of months?

Yes, Sal, this is Ted Baun. A lot of the industry folks are asking that exact question. We would expect it to taper off, but we just don't know. A lot of the folks that follow the coal market think it will level off here, and it's hit bottom, but like I said, we just don't know. We remain unclear on that.

Okay, if I could just ask one more. The margin increased sequentially, if I look at the manufacturing, operating margin increased nicely sequentially. Is there, I guess, can you, is there any color you can provide as to how much of that sequential increase was due to just better pricing, as opposed to just, say, utilization? Fixed cost absorption in the system.

We don't give any -- that kind of level of detail, Sal. There's, as you would expect with more partial orders, always a little bit of operating leverage there, but we don't give out specifics.

Fritz von Carp, Sage Asset Management.

You know, I just had a question about -- you made some comments about the coal market earlier, about volumes had been down and stuff. I just want to make sure I understand, to be specific, which market you were talking about, and what your view is on the metallurgical coal export market. If no aluminum cars were ordered, it would seem you'd have a lot of dependence on that. You know, what -- were your comments directed at the entire, sort of, broader coal market, of which a lot is thermal, or were you speaking more specifically about the export market?

Good question, I was speaking more of the thermal market for coal.

Okay, and do you want to make any comments on the export market or the metallurgical export market?

As I mentioned in my prepared remarks, we expect the export market to be, continue to be strong this year, perhaps not quite approaching record levels of last year, but getting pretty close to it.

Matthew Dodson, Edmunds White Partners.

Can you talk about just, maybe you don't give this, but your order rates that you saw in April?

We don't report on order rates post-quarter, we only report on a quarterly basis.

Okay. Can you talk a little bit about what you're seeing in pricing, since you've talked about orders starting to decelerate, has pricing started to get more competitive, or are you seeing that you have to discount more, et cetera, in pricing?

Yes, it's certainly going to get more competitive in the marketplace. We're seeing it now and we expect that to continue.

Can you give us a sense of how much pricing maybe has deteriorated at all?

No, we don't give that level of guidance.

Okay, and then can you talk about capacity utilization? Obviously, you were at a certain capacity utilization through Q1. Can you give us a sense of where you are relative to capacity utilization now, or how much you've decelerated or brought down?

As I mentioned earlier, we build to our customer's requirements for delivery purposes, and will continue to do that the rest of the year. We do still have a limited amount of capacity in the fourth quarter.

Okay, and the last question I have, obviously you have a phenomenal balance sheet. Can you talk at all about how, potentially, you might start to put that to work to benefit shareholders?

I think we mentioned, several times in the past, our interest in continuing to grow our Service business, and we're continuing to explore those opportunities as they occur, and we're working that actively at this point.

(Operator Instructions)

[Eric Dominguez], Clinton Group.

Good morning, gentlemen. Had a question about, if you had any insights into how the rail companies or leasing companies are deciding between rebuilt and new orders, and how you're trying to influence that decision?

This is Ed, you know, the rebuild market is very specific to the availability of hulks. And it's very difficult to make a generalization from one group to the other, but, I think you should just keep that in mind, that there is relative limited availability of hulks, and it's specific to hulks that are owned by those individual companies.

Okay and in reference to the rail, the coal cars in storage, do you have a feel for the percentage that's the older steel cars, and also the break down between the leasing companies?

Well, there, we said there were 35,000 cars, coal cars, in storage and the total fleet is about 270,000 coal cars. I don't have the break down of aluminum or steel at this point, or ownership.

Okay. And as far as, related to your build rate and capacity utilization, on your delivery dates, how hard are those delivery dates? What kind of flexibility do you have on delivery dates?

We have deliveries out into 2013, at this point.

Are they specialized by quarter, or specific date?

We have specific contractual delivery dates.

Sal Vitale.

Hi, just had one additional question, if we look at the services business, how should we expect the revenue to continue to ramp up in that business, through the rest of 2012?

We would, we expect to see a gradual improving trend in that business for the rest of the year.

Okay, and in terms of profitability, how much, what type of margin expansion should we be expecting for that business?

As Joe's pointed out, we don't give guidance related to margins.

Thank you very much and at this time there are no other questions in queue.

All right, this concludes today's conference call, thank you for joining. A replay of this call will be available beginning at 1 PM Eastern Time today at 1-800-475-6701, Passcode 246557. Good day.

Thanks everyone

Operator. Thank you and ladies and gentlemen, that does conclude your conference call for today. We do than you for your participation and for using AT&T Executive Teleconference. You may now disconnect.