Trinity Industries Inc (TRN) 2005 Q1 法說會逐字稿

Good day. All sites are currently online in a listen-only mode. (OPERATOR INSTRUCTIONS) At this time I would like to turn the program over to your moderator, Mr. Chas Mitchell.

Thank you Tony. Good morning from Dallas, Texas, and welcome to the Trinity Industries first-quarter results conference call. I'm Chas Mitchell, Vice President and Chief Accounting Officer for Trinity. Thank you for being with us today.

Joining me today on the call are Tim Wallace, Chairman, President and Chief Executive Officer; Bill McWhirter, Vice President and Chief Financial Officer; and Steve Menzies, President of Trinity Industries Leasing Company. Also in the room are John Adams, Jim Ivy and Neil Shoop.

A replay of this conference call will be available starting one hour after the conference call ends today through midnight on Wednesday, May 11th. The replay number is 402-220-1122.

I would also like to welcome our audio webcast listeners today. A replay of this broadcast will also be available on our website located at www.trin.net.

In a moment I will be covering our current debt position; Tim Wallace will give a brief look at our rail business; Steve Menzies will address the rail market and our leasing business; and Bill McWhirter will cover our financial performance for the quarter. Following that we will move to the Q&A session.

Before we start let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and includes statements as to expectations, intentions, and predictions of future financial performance.

Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Let me address our current debt position. At the beginning of the year, we began investigating different long-term debt instruments to complement our current debt structure. Our inquiries to the capital market showed the market to be receptive to a number of different instruments including senior notes and bonds. We decided to extend and expand our existing $250 million revolving credit facility to $350 million.

In April, we expanded the facility, led by JPMorgan, to provide for a five-year $350 million secured revolving credit facility. More favorable covenants and pricing are provided for in the amended facility. At March 31, 2005 there were no borrowings under the revolving credit facility. At March 31 our only borrowings at the corporate level were the $300 million of senior notes and $5.7 million of other indebtedness. The Leasing Company had the $130.1 million of equipment trust certificates indebtedness outstanding and $134.1 million outstanding under the $300 million Railcar Leasing warehouse facility, which is led by CSFB and matures in August of this year. At March 31 our debt to total capital ratio was 34.6%, up slightly from the comparable amount at December 31, '04. At March 31 our cash position was $113.7 million.

Now here is Tim Wallace.

Thank you Chas, and good morning everyone. I'm pleased with our progress. We had a solid first quarter, and we're beginning to see benefits from the initiatives we put in place during the past few years. Our performance should continue to improve throughout the year. Our primary concerns from a performance point of view continue to be rising steel costs and on-time material deliveries. However, the processes we put in place last year, along with the changing market conditions, kept these issues in check during the first quarter.

Our European railcar business did not have a good first quarter. Demand for railcars in Europe remains very low. Our backlog of orders in Europe decreased from approximately 1270 units at the end of the year to approximately 1100 units at the end of the first quarter. We shipped 450 units during the first quarter versus 560 units for the fourth quarter. Our first-quarter revenues were approximately 35 million, and we lost 5.7 million at the operating profit level.

During the second quarter we expect revenues in Europe in the same area as the first quarter and a loss between 3 and $4 million. In the third quarter we expect a smaller loss to be between 1 million to 2 million. And as it looks now, we expect this small loss to a breakeven in the fourth quarter.

We recently took steps to reduce our costs in Europe. We just completed a two-week shutdown of our Romanian plant, and we recently laid off approximately 300 employees. We're still reviewing our strategic options for this business, and I hope we have more positive information to report about our European operations during our third-quarter conference call.

I'm pleased that our North American railcar businesses have turned the corner from a profitability point of view. Our shipments are consistent, and we're seeing the benefits on our strategy of selling long production runs. During the first quarter our North American railcar shipments increased slightly over the fourth quarter to approximately 5300 units.

As you can see from our financial statement, the Rail Group made 8.8 million in profit after the 5.7 million charge for Europe. A portion of our profit improvement is due to operating efficiencies tied to a more stable production level. Our employee trading costs have been high during the past few years as we ramped up our production. Fortunately, most of our learning curve costs are behind us.

Demand for railcars in North America during the first quarter remained strong. The majority of our existing railcar production lines are booked through the end of the year. Our shipments have increased 10 out of the last 12 quarters at double-digit growth rates.

During the balance of the year we are transitioning into a period of moderate growth. We expect to ship between 5200 and 5900 units per quarter. We expect our annual shipments to be between 21,000 and 23,000 railcars this year.

We have completed nearly 80% of the multiphased expansion program I outlined several years ago. Our short-term objective for our North American rail business has been to control the acceleration of production based on market demand, the ability of our supply chain to provide basic materials and our ability to efficiently train our workforce. We expect to maintain our production level until the opening of our new facility in Mexico in the spring of 2006. During the interim we're concentrating on improving our productivity and performance.

From a sales point of view, we continue to focus on selling and leasing railcars that extend our existing production lines without requiring changeovers. This is in lieu of setting specific market share goals. Short-term we're planning to extract as much efficiency as we can out of our existing production lines. We have planned some productivity improvements that will impact the type of orders we pursue. Our market share figures will continue to fluctuate until we have completed these initiatives.

During the first quarter we missed some coal car orders. This occurred because our line was full and we chose not to expand our production capacity until we improve our productivity. This year we've scheduled some significant productivity improvements to our coal car production line. We plan to make these modifications during the fall when we're in the middle of a long consistent production order and our tooling arrives.

We view the coal car business as a strategic market and expect consistent long-term demand. During late 2005 and early 2006 we will prove out our new production methods. We may elect to increase our capacity by installing another production line.

We're approaching the intermodal railcar market with a similar game plan. During 2003 we restarted our intermodal production lines. In the third quarter of 2004 we sold a large order of railcars to one customer and trained additional workers to increase our production run rate. We recently received a duplicate order from the same customer, which will extend our production for this type of equipment into 2006. We will use this long production run to perfect our productivity and enhance our overall competitiveness in this type of car. By concentrating on early-stage growth and then transitioning to productivity improvements, we will be highly competitive when we shift to market share growth.

As for the Company as a whole, I'm excited about the progress of our barge litigation and the barge market, the strength of our construction market, as well as the overall performance of our leasing company. I'm very optimistic about the improvements we're making this year.

At this point I will turn it over to Steve Menzies for his comments.

Thank you Tim. Good morning. This morning I will make a few comments about the railcar market and then a few remarks about our Leasing and Management Services Business.

Demand for railcars in North America remained strong in the first quarter, as more than 17,600 railcars were ordered, continuing the pace set in 2004 reflecting general economic growth, increased railroad freight loadings and replacement of older, smaller railcars. This compares to the approximately 12,000 railcars ordered in the fourth quarter of 2004, and the quarterly average of 18,000 railcars ordered during all of 2004.

During the first quarter Trinity received more than 3100 railcar orders. We continue to focus our sales efforts on new railcar orders that meet our pricing requirements and production plans. We received orders during the first quarter that will extend existing production lines for covered hoppers, auto racks, no gondolas, coal cars and tank cars. And as Tim mentioned, at the beginning of the second quarter we've received an intermodal order extending our production line for this car type into 2006. Current order levels and inquiries indicate continued strong demand for a variety of railcars which support our production plans.

The industry-wide production backlog at the end of the first quarter was approximately 60,000 railcars. Backlog has remained basically stable during the past three quarters. This indicates that industry order levels are keeping pace with increased industry production and that the supply chain is catching up with the increased demand. Trinity's railcar production backlog in North America is approximately 17,300 railcars spread across a wide variety of car types.

Trinity Industries' Railcar Leasing and Management Services Group continued to grow its railcar fleet, taking delivery of approximately 1000 new railcars during the first quarter. This represents about 19% of Trinity's North American first-quarter shipments. Our operating and lease fleet has grown to more than 21,000 railcars and includes over 175 customers, many of which have begun new business relationships with Trinity Leasing as we expand our Leasing and Management Services Business.

In addition to our operating and lease fleet, at the end of the first quarter we provided administrative, maintenance and asset management services to railroads, financial institutions and shipper-owners of railcars for an additional 62,000 railcars. The growth of management services is a complementary strategy to our leasing business, and that allows Trinity to work more closely with its key customers.

Our committed lease backlog at the end of the first quarter was approximately 3200 railcars or 19% of Trinity's North American production backlog. Our fleet utilization increased to 99.3% compared to 98.3% at the end of the first quarter of 2004 and 99% at year-end 2004, reflecting strong overall demand for leased railcars. Our average remaining lease term is almost six years.

Consistent with high fleet utilization and a strong level of new car building, these rates continue to rise. Our average fleet lease rate has increased approximately 3% over the last 12 months, reflecting strength in renewals and new car lease rates.

I will now turn it over to Bill McWhirter.

Thank you Steve, and good morning everyone. My comments relate primarily to the first quarter of 2005.

We filed our form 10-Q this morning. You will find more details there summarizing the quarter.

During my remarks I will provide earnings per share guidance for the second quarter and the full year. Additionally, I will update the previous guidance with regard to operating margins in our Rail Group.

We are pleased with the first quarter 2005 earnings of $0.11 per share as compared with an $0.08 per share loss in the fourth quarter of 2004 and a $0.25 per share loss in the same quarter of the prior year. Revenues for the first quarter of 2005 increased 42% to $647 million over the same quarter of last year.

At this time I will discuss the performance of our individual business segments.

At our Rail Group, North American railcar revenues were 112% higher than the first quarter 2005 compared to the first quarter of 2004. Rail Group sales to Trinity's Railcar Leasing and Manufacturing Services Group were 72.2 million in the first quarter of 2005 with profits of 4.5 million. This compares with sales for Leasing in the first quarter of 2004 of 34.2 million with a profit of 3.3 million. These intercompany sales and profits are eliminated in consolidation.

In contrast, our European rail revenues were down 38% in the first quarter of 2005 compared to the same quarter of 2004. Component revenues were flat on a year-over-year basis at approximately $33 million.

Our previously forecasted operating margins for the rail segment during the first quarter was 1%. Actual results were 2%. This improvement is primarily due to labor efficiencies as we gained ground on our learning curves faster than anticipated.

Based on our operating performance in the first group we are adjusting our guidance with regard to operating margins for the Rail Group for the second quarter. This is an adjustment from the current range of 3.5 to 4% to a new range of 3.5 to 5%. At this time we are not updating the margins for the second half of the year from the previous guidance of 4.5 to 5% in the third quarter and 5.5 to 6% in the fourth quarter. Included in our assumptions for 2005 are an improving rail market in Europe later in the year, achieving production efficiencies in North America, and no significant supply problems in steel or other basic materials.

As you know, increasing steel prices have been an ongoing issue. During 2004 we have developed price escalation clauses on our contracts to cover additional steel cost increases. Approximately 60% of the North American railcar deliveries in the first quarter were under contracts with escalation clauses. As Jim Ivy mentioned in more detailed during our conference call last quarter, the effectiveness of the escalation clauses with respect to passing on cost increases is expected to improve throughout 2005. The impact of unrecovered steel cost increases for the first quarter in the Rail Group was approximately $10 million, or about 2.3% of lost operating margin.

Our North American backlog as of March 31, 2005 consisted of approximately 17,300 railcars with an estimated sales value of $1.25 billion. Of the 1.25 billion in backlog revenue, we believe approximately 97% is either subject to escalation or is believed to have locked in material costs. Although we do not expect additional significant margin erosion as our backlog is delivered in 2005, overall margins will continue to reflect the impact of steel and material cost increases that occurred in 2004.

As a reminder, we have obligations to deliver 1000 unspecified car types in 2006 and 2007 that are not reflected in our backlog. These cars are under terms that could cause price escalation that are out of sync with our actual changes in cost and could result in margin growth or erosion.

In our Construction Products Group this quarter revenues were up on a year-over-year basis by approximately 19%, primarily due to improved pricing to offset raw material increases. Operating profit increased by 4.7 million and margins improved from 1.7 to 4.7%, primarily from efficiencies achieved by our fittings, bridge and highway safety businesses.

Our concrete business has entered the construction season with pricing in place that offsets raw material costs. We are experiencing strong demand for our products. Given normal weather conditions we expect good results from this business.

Our highway safety business is performing well. Both revenues and margins improved this quarter as compared with the same quarter last year. The improvement is due in part to the continued increase in sales of our proprietary line of highway safety products, which includes end terminals, crash cushions and cable protection systems. Continued strong demand for our standard products at prices that reflect current steel costs also contributed to this business's solid performance.

Our pipe fittings business continues to experience a nice rebound and is realizing the cost benefits of previous plant consolidations during the past few years.

Our bridge girder business had a profitable quarter this year versus a small loss in the same quarter of last year and appears poised for a good year. The backlog in this business has grown significantly since the first quarter of 2004.

While these businesses are currently performing well, we believe the passage of the pending Federal Highway Bill will generate improved results in 2006. Our Construction Products Group remains a key part of our earnings diversification strategy.

The Inland Barge Group's first quarter was adversely affected by approximately 3.3 million in costs associated with the settlement and agreement in principle of two pending lawsuits and two other unrelated warranty matters. Without the settlement charge the group would have broken even and appeared poised for recovery. The entire barge backlog as of March 31, 2005 is under escalation clauses or locked-in steel prices, and as such is 100% covered.

On the tank barge side of the business we continue to enjoy a strong backlog and are currently taking orders for 2006 deliveries.

We mentioned in our last conference call that our hopper barge customers clearly needed additional units but were delaying placing orders. This has now changed. For the quarter we have received firm orders of 85 units, more than all of 2004. And strong verbal commitments indicate that the order pace is continuing into the second quarter.

As a reminder, we have idled one hopper barge facility. Should market demand continue to improve, we have the flexibility to increase capacity quickly by reopening this facility.

As for barge litigation, discovery and pretrial proceedings on the remaining two cases, they're continuing to move through the court system. Litigation expenses continue to erode the performance of this group.

In our Rail Leasing and Management Services Business revenues are up on a quarter-over-quarter basis by $17 million. This is primarily due to four factors -- the sale of cars from the fleet, the addition of the new cars to the fleet, improved rates and improved utilization. Total operating profit increased by 4 million, principally due to the car sales. We are currently anticipating net fleet additions of between 325 and $375 million for 2005 as we continue growing this business segment.

I will now review the status of the Industrial Products Group. We are pleased with this group's first-quarter performance. On a quarter-over-quarter basis revenues improved by approximately 12% and operating profit improved by 3.8 million. This business continues to benefit from cost savings improvements we implemented during late 2003 and early 2004, as well as the solid demand in Mexico for our products. The backlog for this business is relatively short as most customers do not make long-term product purchases.

On a consolidated basis our SG&A expenses have declined to 7.2% of revenues from 8% from the same quarter the previous year. Non-leasing CapEx is projected at approximately $110 million for 2005. Of this amount, approximately 50 million relates to the combination of two projects, the new plant in Mexico and our new aggregates facility which will serve the North Texas marketplace.

We expect earnings per share for the second quarter to range between $0.25 and $0.32 per share, assuming normal weather conditions. Overall our updated Company guidance for 2005 is an earnings per share of between $0.90 and $1.10 for the full year. Included in our assumptions for the remainder of 2005 are an improving rail market in Europe for the third and fourth quarter; continuing to achieve production efficiencies in North America; no significant supplier problems in steel or components; orders in our barge business which fill out the 2005 capacity; normal weather conditions; no unanticipated adverse resolution of legal matters; and the deferral of between 30 and $35 million in profit on sales from the Railcar Group to Leasing and Management Services Group.

At this time I will turn the presentation back to Chas for the question-and-answer session.

Thanks Bill. Now our operator will prepare us for the Q&A session

(OPERATOR INSTRUCTIONS) Alex Blanton, Ingalls & Snyder.

Could you repeat the guidance that you just mentioned? I missed that.

The guidance for the second quarter was $0.25 to $0.32 and the annual guidance was $0.90 to $1.10.

$0.90 to $1.10. Okay, thank you. Early in the call I think Tim mentioned that you were concentrating on cost and efficiency steps that would impact the type of orders taken. What did that mean?

That refers to an example that I gave in our coal car business where we missed some coal car orders this last quarter because we planned to come in with some upgraded tooling into the line, and we didn't want to put in a second line until we upgraded the tooling in the first line and get the productivity benefits. And basically, we've been on a program of saying let's grow our business; let's bring the manpower in; let's go through the cost of training them; get them up to the production level we're at now. And currently we're going to focus heavily on productivity and efficiency gains before we start targeting market share percentages.

That sort of leads into my second question, which is that you've got 17.6% of the industry orders in the first quarter, and yet you have 29% share of the backlog. So it looked like you were light on first-quarter orders compared with the past. Now you just explained you missed some coal car orders, but was there anything else?

Yes. I think generally speaking we look beyond the quarterly figures because of the various car types that fluctuate. They don't always fall in a particular quarter. An example that I gave was the intermodal order that we received at the beginning of the second quarter. It was, I think, the first week or so in the second quarter. This order extended our line for another five to six months. We target orders which extend our production rather than market share percentages, as I have said many times.

Although I will say that if the first quarter market share percentages were representative of the entire year I would be disappointed in our performance. But fortunately, the pipeline of inquiries for additional orders is full right now. And so our people are real active, quoting other orders. We're not seeing that there's a slowdown that we're experiencing. And so we'll just have to take it from there.

How big is that intermodal order?

It's 1500 units.

Okay, thanks.

Louis Apear (ph), Oppenheimer.

Thank you very much. I have several questions. How much of your fixed-price contracts will impinge on your earnings for next year?

How much of our fixed-price contracts --?

Will impinge on earnings for next year? I am referring to the cost of steel.

Basically our backlog -- about 90% of our backlog will run out in 2005. So there's very little of the backlog that moves into '06.

The second question is will you kindly give us some more specifics on the wind tower business; how much business are you bringing in and who is your competition?

We're bullish on the wind tower business. We think it has got some good potential. We had a railcar facility where we had made tanks for a number of years, and we made other types of tanks, and we switched it over and are building wind towers. We currently have a contract backlog that is in the 50 to $60 million range. And we've got a good, strong relationship with GE, who is a premier provider in those products. And we're basically sold out through this year and we're working on next year. This business ties to a lot of the tax credits that they get. But we're bullish on this.

Who is your principal competition?

There's several different other tower manufacturers that are involved in this. A company we used to own called Beard Industries (ph) in Shreveport makes these towers. There's a company up in the Northeast -- Midwest, I guess -- in North Dakota area called DMI that make these towers. There's a company out in El Paso that make them, the tower structures. We don't make the turbines. We just make the tower structures.

Is the business profitable at this point, or do you need more units?

No, the business is profitable at this point.

How do you see the growth?

We see the growth being tied to the tax credits that are part of the Energy Bill. And if we get an Energy Bill passed we think this is going to be a very strong growth business for us.

Thank you very, very much.

Wendy Caplan, Wachovia Securities.

Can you talk a little bit more about this large settlement? How much do we think -- this is what percentage kind of put behind us now? How much more is there out there?

And also, in the barge orders that you got for the quarter, it looked like a big number. It's been awhile; can you remind us what a normal level of barge deliveries should be?

Bill, why don't you handle part of that, and then I will fill in.

From the barge litigation side, we filed the 10-Q this morning. And in the 10-Q you'll find the series of disclosures that we made public (technical difficulty) more detail in the 10-Q regarding litigation.

Basically we have two lawsuits left that are in here. We started out with six and we're down to two.

As far as the market demand we're seeing, we've always monitored the river rates for what it's costing people to utilize barges up and down the river. And those rates have moved up. There's a large movement of barges that is moving northbound, which is abnormal. But there's so much materials coming in right now from an import standpoint that is moving up the river that it's put the barges to work. Normally it's a southbound. Coal is a big driver of barges, and the coal market is strong. In fact, a lot of the barges that we've sold are going into the aggregate coal, iron ore type business. And we have got a full pipeline on inquiries in that business as well.

As far as order level and that level, if we receive 80 to 90 barges a quarter order level on that, that is a decent level for us. We think, though, that it might even be higher than that level in that range. We have produced before 6, 700 barges a year, and some of our peak years a 5 to 600 year is a good year for us. And we've got extra capacity that we can always bring on in that particular business. So we're monitoring it very closely.

Okay. These missed coal car orders that you referred to a couple of times, you are currently building coal cars -- or maybe the question is could you tell us what car types you are currently building?

Well, we have more than 12, 13, 14 production lines running right now, and they're running the various different types of cars. We have one line that is dedicated full time to coal. It's been on coal for 1.5 years plus to 2 years. We're sold out through the end of the year on the line. What we were wanting to do is upgrade some equipment that we have in that line. And what we have done is we've waited until we had a line, a long run of consistent orders from a consistent customer to where we could go in and break into the line. And our production specialists have got a plan that they're working to be able to input some new equipment.

We're going to -- we're very optimistic of the benefits we will get out of this new equipment. If we get the benefits we hope we will get, then we will look at putting in a second line. But we've been in the coal car market for some time. We just haven't been expanding it.

And when you bought Thrall several years ago, I remember talking with you about it being accretive to earnings once we got to a certain level. Have we crossed that line yet?

Well, in fact, the coal car line I was talking about is being produced in a Thrall facility. We have one of their large facilities running full bore right now with multiple car types running in that line, and that is a profitable facility.

Answering the question of accretive, I think that’s one that Bill or somebody else is going to have to answer. I think obviously it's probably not accretive, but it's definitely adding to our profitability and enhancing our strategic positioning.

Bill, do you want to take that one?

I would tell you at this time it is certainly not accretive. I think as we roll through the year we will take a look, and maybe at the next conference call we will address the question in a little more detail.

That would be very helpful. Thank you very much.

Sean McDaniel (ph), SNM Research (ph).

I have a question about the guidance. If I heard you right, you said $0.90 cents to $1.00 full year. Is that correct?

I said $0.90 to $1.10.

Sorry, $1.10. Okay. And is that apples-to-apples with last quarter as far as what's excluded and what's included?

Yes, it is.

So you're at $0.90 to $1.10 versus last quarter, which was $0.85 to $1.05. (multiple speakers)

Correct.

Okay. Can you sort of -- I guess I'm a little bit stooped or concerned of questioning the backlog and then the guidance together. I need a little clarity here because it looked to me like you guys just trounced the EPS number for guidance this quarter by excluding everything about (technical difficulty) and yet it looks like you took your full-year guidance up by $0.05. And I'm trying to figure out how I reconcile that with the decline in backlog. How do we work through this as far as what we expect for the remainder of the your? Have things gotten better? Have things plateaued? Or what's up?

I think in the first quarter when you look at the additional 1% we picked up in the rail margins, what we said is we've gotten up on our learning curves much faster than anticipated. So at some point in time the incremental improvement in that area is not as rich as you move forward.

Additionally, as Tim alluded to earlier, the European operations were a drag in the first quarter. And the forecast looking out we have caveat and said we're very concerned or we're looking forward to orders in the third and fourth quarter in Europe are a condition to the EPS guidance.

So I think if you look at that and then you look at the fact that $0.05 came from a railcar sale from the Leasing Company, you have got kind of a timing aspect associated with that. So we've moved the guidance up $0.05 on both sides, and I think that is the appropriate range at this time.

Okay. I'll get back in the queue. I'll come back to you all. Thank you.

Bob Fetch, Lord Abbett.

Addressing the barge business first, you talked a little bit earlier about what normally is a good year, but the fact that many customers had really held orders in '04. Refresh me what the orders were on hopper barges last year in production?

Last year the orders were less than 60. And basically you can look at a hopper barge that the average hopper barge weighs about 300 tons, or has about 300 tons of steel. And with a $300 per ton movement of steel costs you ended up having a 90 to $100,000 price increase on a barge that was selling for $225,000, somewhere in there. A lot of the industry took kind of a wait and see type approach of saying let's just hold back on purchasing these barges.

And barges are made primarily out of plate steel. As we have mentioned in our conference calls before, plate steel is a different market than sheet steel, and plate steel hasn't had the movement down that sheet steel has had. So there's a recognition now by the industry that this price, the price that we're quoting on barges, is a price that can support the rental rates that they're receiving for their trips and the charter rates. So the economics have pretty much come into line to where the people are now fairly aggressively pursuing us for barges.

So orders were 60 and your production was what?

Oh yes. Last year we had a backlog. Last year the situation that happened, we had a backlog of -- I think it was about 400 barges when we started out the year approximately. And those barges, as you recall -- I don't know whether you're aware, but those barges had firm prices, and we got tied up with steel costs increasing at a more rapid pace than our prices could. So we ended up losing some money during the year. And so we shipped somewhere around 400 barges, hopper barges last year. And that worked out most of the backlog. When we came into this year, the first quarter we were very light and we were hoping what would happen happened. And it looks like timing is playing in our favor now.

Was '03 a normal year?

'03, when you say normal year (multiple speakers) normal.

As you said, a good year is 5 to 600 and a peak year is 6 to 700.

And we're talking about our shipments that were in there. And what was '03?

'03 was about 300 units. '02 would have been the 500 unit kind of caliber. So if you look back to '02, '01, you're in that 500 range fairly consistently.

So if we were fairly low for our last couple of years there ought to be some pent up demand there.

Yes.

Now plate steel I think is also used in your tank cars correct --?

Yes.

-- on the railroad side.

Most of our railcars use, a lot of them use plate steel.

Did you find some resistance as well in terms of the orders you received for tank cars last year that for the similar reasons ought to go away this year?

Yes. I think what has happened in railcars is a lot of the people put in -- us and our competitors put in escalation clauses, and then when the escalation clauses started to surface and the new pricing was out there was a hesitation that occurred. If you look at the fourth quarter, the order level was down somewhat. And the same thing, same situation, is happening in the rail market as well.

So as you indicated, the price increases because of plate on barges was 90,000 plus on a 225,000 base. What was the same dynamics in the tank cars? What was the base and how much of a price increase was there?

We don't disclose that on tank cars. And it's more complex on tank cars because you have various -- tank cars have different types of steel, various sizes. And when I say various types of steel, it's various thicknesses depending on the type of materials that they're transporting.

Are you also making tank barges?

Yes. I think, Bill, you said our tank barge line is booked up through this year into next year.

Because I know those shippers are getting healthy rate increases. So that should be supporting their purchase orders.

We feel the same way.

Can you just address what your capital expenditure thoughts or estimates are for the year and depreciation and amortization?

From the CapEx perspective, we said that it’s $110 million estimated for the year, 50 million of which is associated with two large projects, the Mexico facility, as well as our aggregates facility.

Depreciation is running about what, 80?

Yes, depreciation for the quarter was right at $21 million and should be fairly consistent for the year.

Okay. So you ought to generate some free cash. Any current plans with that this year?

I beg your pardon?

You should generate some free cash this year. What are the principal uses?

From a free cash perspective our guide is we take our cash flow and take a look at our cash from operations, and everybody's got a little different definition on what they come up with cash -- free cash flow definition. So if you look at that and work your way forward, obviously working capital is going to move up as the sales dollars move up as well.

And a clarification. You mentioned earlier you have 1000 railcars that are not in your backlog that could swing positively or negatively your margins.

We have a long-term contract that requires 1000 cars to be delivered in '06 and 1000 in '07. It does have an escalation clause, but the escalation clauses has a window of time at which it's fixed that doesn't allow us to predict the effectiveness of that escalation.

Okay. Last question, just looking at your long history, typically the industry has gotten, I would consider it as a long cycle business on the railcar side in particular. The late '70s was a good cycle, and then you had the mid to late '80s and then mid, late '90s. Obviously last year you guys were impacted and didn't get the benefit of the pickup. But do you feel like we're still in the first half of the ballgame here? Because one thing that was clear that the assets of the Company have generally grown over the years, and you have generated typically higher peak earnings than prior cycles. How do you feel about what your earnings power prospects are this cycle with market conditions as they exist today?

Let me correct one thing that you said. There's been two peaks that occurred, and it was a peak in the late '70s to the early '80s. The mid '80s was a pretty deep valley for this business in '82, '83, '84. And then it took -- I think it was about six, about, oh, ten years -- 10 to 11, 12 years until the market started regaining its momentum in the mid to late '90s and it peaked in '98 and '99. That time period, some of the demand was driven after consolidation of the railroads and some of the inefficiencies that were associated with that. And then it fell off with the rest of the economy in the early 2000s and has started to rebuild and gain momentum since about -- the industry bottomed out in the middle of 2002.

So we're really on what we see as kind of the early stage of a major replacement demand. And if you look at the fleet by car type, which we do, you'll see that there's various car types that are over 20 years old. There's I think 0.5 million. There's 1.6 million, 1.7 million cars in the fleet, and there's 0.5 million cars over 25 years old. And so a railcar, when it gets into the 30-year range to 35 years, they start to become obsolete and replace them for various reasons.

And we feel that this is not a peak and a spike. We feel this is more of a plateau. And we made a decision several years ago to focus on labor efficiency and lowering our cost. We closed several of our higher cost facilities and have reopened our lower cost facilities and are expanding new facilities in Mexico that even give us a lower cost. And we sacrificed some profitability in retraining this lower cost workforce, but we think long-term we're going to be in a highly competitive position. And long-term will probably be in the middle of '06 to 2007, when our labor force is fully trained.

Now we're at a level that we're about 80% of where we expect to be. But at this level right now at (indiscernible) 5000 to 6000 units we've overcome the learning curve and we're in a much more better competitive position. And you'll see as we go through the year we will enhance our position where we are now with our existing labor force.

So if in fact you're successful on this shift from "higher cost to lower cost geographies and labor" that would suggest that you ought to at least earn historic margin levels at some point in the cycle.

I think that's a good expectation and assumption.

Thank you.

(OPERATOR INSTRUCTIONS) Gary Abelin (ph), Impolo Asset Management (ph).

Tim, could you talk a little bit more about Europe and some of the things that are on your mind as regards to making some improvements there and making some changes?

Yes. We're currently focused on reducing our cost in Europe. We're looking at outsourcing, becoming someone that other companies would outsource for different products. We have some customers that are looking at putting some other products in our European force (ph). In Romania and in the Czech Republic we have some highly competitive, low cost workforces. So we're exploring other alternatives there to produce other types of products. We're also looking and seeing if there's any opportunities from a strategic point of view of participating in some kind of strategic move in that marketplace. But we're still in the early stages of that.

Do you think in terms of the operating performance that maybe in Q1 -- I guess you said earlier the worst is at least behind us here with regards to operating profit or losses.

Yes. I don't know whether you're making a statement or asking a question.

I'm just trying to remember. You gave us some numbers earlier, and I couldn't get them all down. I think you said 5.7 loss in Q1 and it should skinny down to near breakeven in Q4.

Yes, that's what we said. We think that things will improve. A lot of the European business at these low production levels, the market -- the mix of products is very crucial to us. When we get a decent mix of products that we're selling at lower levels, they have -- the higher margin cars can help some of the lower margin cars and cover some of our costs there.

Generally speaking, the European market for railcars should have some good long-term upside potential. The fleet is older than the US fleet is. It's not as large as the US fleet. I think it's about half the size of the US fleet. But it's older than the US fleet. And we think that long-term there's a tremendous opportunity in Europe for upside potential. It's just a matter of weathering through the storms that are here.

Just one more to clarify. I think maybe Jim or Steve had mentioned earlier steel cost impact in Q1 in rail business. Was there a number mentioned of $10 million?

That's correct, $10 million in Q1.

Can you give us a sense of what that skinnies down to in the balance of the year, or does that mostly go away as of Q1?

No, I think the better guidance we're giving is the real margins themselves for the balance of the year. I think that's pretty pertinent data.

Fair enough. Thank you.

Stephen McBoyle (ph), Lord Abbett.

With regards to Europe and the reduction of loss through the year, how much of that is very much predicated on order demand in the back half as opposed to conscious efforts to reduce capacity?

Well, as I said earlier, we have a backlog of 1100 units at the end of the first quarter. We're currently shipping somewhere between 4, and 5, 600 units a quarter. We have some orders that we're pursuing right now that will come in for deliveries in the third and fourth quarter. If the customers elect to hold off and not purchase the cars, then we will be confronted with a situation where we have a decreasing number of cars that we're shipping, and we'll have to modify at the third-quarter conference call our numbers that we're providing. But right now we just are trying to give you the best guesstimate of what we think. But it is tied to the order backlog and the competitiveness of the market.

So tied to order backlog, meaning that which is committed today, but there may be a kind of readjustment Q3 if those deliveries don't come through?

That's right, there could be.

To the extent you took up the total shipment number for this year, was that predicated entirely on the intermodal order?

Ask that question again.

I believe your original shipment number was 20 to 22. I think you mentioned 21 to 23. Is that predicated just on this intermodal order?

No. We had that in our projection when we had given that out. We're increasing some of our shipments on some of our lines as our productivity improves. That's one of the benefits that you get. You can take the same manpower and ship more cars. You get a lower cost, you get higher units, and that happens at this level. At the same time, we have a few lines that will move up in volume.

So absent what looked to be a softer order level for you in Q1, you are implicitly taking up shipments naturally through the year?

Yes.

And then you threw out a number of numbers with regards to revenue and the loss in Europe. I think it would imply -- and this, I guess, would include the 10 million in steel cost -- of about 4% margins in North American rail manufacturing. Is that about right?

The 10 million related to North America. So in fact if you would have taken the 10 million and reduced the European loss from it, I think you would find North America's number to be closer to 6%

That makes sense. How would you anticipate that that would move through the year, North America specific?

Once again, you're back to we provided guidance on the rail margins throughout the year. So I don't know if you caught those, but 3.5 to 5 in the second quarter, 4.5 to 5 in the third quarter, and 5.5 to 6 in the fourth quarter. That's for the Rail Group as a whole.

Fair enough. And then on the Construction Products Group, obviously a strong quarter and a seasonally light quarter. You talked obviously with regards to broad-based demand there. And it sounds like it was pricing, but I just wanted to confirm as much volume as price. And was there any pull forward in any of those business lines Q2 to Q1?

Pricing from the aspect of revenue increases. But from the aspect of profitability increases, really efficiencies in our fittings, bridge and our highway safety business.

And anticipate that obviously to continue?

We certainly hope so.

The hopper barge backlog covers you through what portion of the year?

We look to be able to say that our hopper barge backlog will be full this year. That's what -- in the numbers we provided, we have assumed that we will sell the hopper barges out for this year. And then we've always got the option of bringing on another facility.

Okay. And the fleet sale in revenue was how much of the 17 million increase?

It was 14.5 million.

And within your guidance, can you just refresh me, does that have the dilutive impact of the converts?

Yes it does.

Okay. And I believe corporate expenses were down sequentially at a rate much higher than I've seen in the past. Is that something that's sustainable?

I believe it is.

Great. Thank you very much.

Louis Apear, Oppenheimer.

Could you give us an idea of how long you think this cycle will continue?

Which cycle are you talking about?

You're at the point now where you indicate you're on the upswing as far as earnings are concerned. How many years forward can we look to see increased earnings?

In cyclical businesses like we have, and weather sensitive businesses, we really refrain from saying how many years you can look for some cycle to last. We think that the railcar demand and the barge demand are both -- the demand curve is more like a plateau than a spike. In our construction products business, we also feel that, as Bill said, a transportation bill will help that. An energy bill is going to help our wind tower business that we have, and will also help the fittings business that we have. And so there's several key drivers that will impact our performance on a long-term. But we really feel like we are at the early stages of a long-term recovery.

Thank you very much.

We're going to be able to take one more call.

Sean McDaniel, SNM Research.

Just a quick follow-up, if I could. Can you provide us with the new debt ratio with your new covenants? I know you said that they're going to be increased to a 3.25 max debt ratio. Do you have that number there?

We don't disclose the new debt covenant.

Finally, I know that you've been using the EBITDAR metric, and I wanted to see if I could sort of (technical difficulty) that up. Do you have the portion of rental expense that's representative of interest for the first quarter? I think in the fourth quarter it was about -- for the full year it was 17.6 million. I'm just trying to build that into my model for you guys.

In the Q that we just released on page -- well, I'm not sure the pagination will work, but about page 19 -- there's a full reconciliation of EBITDAR, as well as the margin and the rental expense details. You will find it right there in the Q (multiple speakers)

I'm looking at it right now. Is it 12.4 million (multiple speakers)?

That's correct.

That's the number for the first quarter, and that would be comparable to the full-year 2004 17.6?

Comparable for the full year?

Yes, in the 10-K it said that rental expense is 17.6 for full 2004.

We're pulling them from the same location, but I don't know that you can take it on a go-forward basis, if that's what you're trying to do.

Okay, good enough. I'll follow up with you guys. Thank you.

You can give me a call direct if you want to go into a little more details on EBITDAR.

Thank you.

We appreciate the questions today. This concludes today's conference call. Remember a replay to this call will be available starting one hour after this call ends today through midnight Wednesday, May 11th. The access number is 402-220-1122. Also, this replay will be available on our website located at www.trin.net. We look forward to visiting you again on our next conference call. Thank you for joining us this morning.

Thank you. This does conclude today's program. You may disconnect at any time, and have a great day.