Trinity Industries Inc (TRN) 2005 Q2 法說會逐字稿

Good day. All sites are now online in a listen-only mode. At this time, I’d like to turn the call over to your moderator Mr. Chas Mitchell. Please go ahead sir.

Thank you Brian. Good morning from Dallas, Texas and welcome to the Trinity Industries Second Quarter Results Conference Call. I’m Chas Mitchell, Vice President, Controller 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 will be 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 Thursday, August 11th. The replay number is area code 402-220-7330. 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, in addition to me, you will hear from Tim Wallace, Steve Menzies, and Bill McWhirter. Following that, we’ll move to the Q&A session.

Before we get started, 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.

Now let me address our current debt position. At June 30, our borrowings at the corporate level were $300 million of senior notes and $8.7 million dollars of other indebtedness. The leasing company’s debt included the $130.1 million of equipment trust certificates and $167.5 million outstanding under our $300 million railcar leasing warehouse facility, which matures in August of this year. We are currently working to renew this warehouse facility and expect it to be renewed.

At June 30, our debt to total capital ratio was 35.5% up slightly from the comparable amount at December 31, 2004, principally due to lease fleet expansion. And at June 30, our cash position was $93.1 million. Now here’s Tim Wallace.

Thank you Chas and good morning everyone. I’m pleased with our progress in our North American businesses. During the second quarter, we continued to build on the momentum from the first quarter. Currently, we’re not experiencing any significant issues with unexpected material cost increases like that occurred last year at this time. The steel industry appears to have sufficient capacity at this time to meet the market demand.

Our European railcar business did not have a good quarter. Demand for railcars in Europe remains very low. Our backlog of orders in Europe decreased 9% to approximately 1,000 units at the end of the second quarter. We shipped approximately 240 units during the second quarter.

What is that? Jason?

I’ll keep going.

Yes, it sounds like it’s on their end.

It’s on their end?

Yes.

Okay.

Brian?

Yes, I think we fixed the problem. You can go ahead sir.

Thank-- We’ve been having some technical problems. I was talking about our European railcar business. The demand for railcars in Europe remains very low. Our backlog of orders in Europe decreased 9% to approximately 1,000 units at the end of the second quarter. We shipped approximately 240 units during the second quarter versus 450 units in the first quarter. We are actively reviewing our strategic options for this business, even with challenges of a market trough there’s always a major struggle for our people. We’re confident that the demand will eventually improve. The European railcar fleet is old and over time replacement drivers should improve demand. We’re very experienced with surviving cyclical downturns and ramping back up once demand returns to more normal levels. Bill McWhirter will provide financial details about our European railcar business during his report.

Our North American railcar businesses are continuing to improve. Our shipments are consistent and we’re seeing the benefits of our strategy in pursuing orders that extend our production runs. During the second quarter, our North American railcar shipments increased 13.1% to 6,015 units. During the second quarter, our North-- during the balance of the year, our quarterly shipments should remain in the 5,400 to 6,000 unit range. We expect our 2005 annual shipments to be between 22,000 and 22,500. This will be approximately a 45% increase over 2004.

Our short-term objective for our North American rail business is to continue to improve our productivity and performance. We will increase our production based on three factors; market demand, the ability of our supply chain to provide basic materials, and our ability to efficiently train our workforce. During the second quarter of 2006, we expect to begin shipments from our new facility in Mexico. At that point, we expect it will take between 12 and 18 months for this facility to become completely operational. Our long-term goal is to ship between 35 to 50% of our North American railcars from Mexico. We’re currently shipping approximately 30% of our overall production from Mexico.

From a sales point of view, we continue to focus on selling and leasing railcars that extend our existing production lines without requiring changeovers. The majority of our second quarter orders extend our existing production. By focusing on strategic selling, we continue to see improved productivity from our existing lines.

We have also broadened our product offering in order to pursue a larger universe of customers. This will cause us to begin to change over a few of our production lines and to add new lines. Training our-- training our employees to make efficient line changeovers is the next phase for productivity improvement process.

Our market share figures will continue to fluctuate as we work on this phase of our productivity plan and as we bring our new facility in Mexico up to speed. By concentrating on early stage growth and then transitioning to productivity improvements, we will be highly competitive when we shift to market share growth. We continue to see current railcar demand as plateau rather a short-term spike.

As for the company as a whole, I’m very optimistic about the opportunities we see in our marketplaces as well as the improvements we’re making this year. Our barge business has become profitable and our construction products businesses are performing well in the peak of their season. We have also had a very successful restart of our wind tower structure businesses. Our leasing company is continuing to play a vital role in our strategy of diversifying our long-term earnings space. And with the passage of the U.S. Congress of the energy bill and the transportation bill, we should see additional demand drivers improve for several of our businesses.

I’ll now turn it over to Steve Menzies for his comments.

Thank you Tim. Good morning. I’ll make a few comments about the railcar market followed by a few remarks about our leasing and management services business. Industry demand for railcars in North America remained strong in the second quarter. More than 19,100 railcars were ordered industry wide, continuing the strong pace set in early in 2004. A number of second quarter railcar orders compares favorable-- favorably to the approximately 17,600 railcars ordered in the first quarter of 2005 and the quarterly average of 18,000 ordered during the last six quarters.

Year-to-date industry orders through June totaled 36,700 railcars, keeping pace with the almost 72,000 railcars ordered in 2004. Strong railcar demand reflects general economic growth, increased railroad freight loadings and replacement of older, smaller railcars.

During the second quarter, Trinity received more than 6,100 railcar orders. We continue to focus our sales efforts on orders that meet our pricing requirements and extend our existing production lines. We received orders during the second quarter that will extend production lines for a variety of cars including several lines producing various types of covered hoppers, new gondolas, coal cars, box cars, intermodal cars and tank cars. Current order levels and inquiries indicate continued strong demand for a variety of railcars supporting our production and sales strategies.

Industry wide, production backlog at the end of the second quarter was approximately 60,700 railcars. The backlog has remained basically stable during the past four quarters. This indicates that industry order levels are keeping pace with increased industry production and that the supply chain is keeping up with demand.

Trinity’s railcar production backlog in North America is approximately 17,500 railcars, consistent with our backlog of approximately 17,300 railcars at the end of the first quarter of 2005. Trinity Industries railcar leasing and management services group continued to grow its railcar fleet, taking delivery of approximately 1,500 new railcars during the second quarter. This represents about 25% of Trinity’s North American second quarter shipments. Our operating lease fleet now includes more than 22,300 railcars as compared to 19,200 railcars in our fleet on June 30, 2004. Our strategy is to grow our leasing business by developing solid long-term relationships with the end users of our railcars, therefore resulting in a significant and stable earnings stream from our leasing business.

Our committed lease backlog at the end of the second quarter was approximately 3,200 railcars or 18% of Trinity’s North American production back log. Our fleet utilization remained 99.3% at the end of the second quarter compared to 99.3% at the end of the first quarter 2005 and 98.2% at June 30, 2004.

The average age of our fleet is 5.2 years and our average remaining lease term is almost six years. These rates continue to rise, a result of high fleet utilization, strong levels of new car building, and rising new car prices.

Our renewal rate, the number of leases renewed as a percentage of expiring leases, has been exceptionally high. Our average fleet lease rate has continued to increase quarter over quarter reflecting the high number of lease renewals and rising new car lease rates.

I’ll now turn it over to Bill McWhirter.

Thank you Steve and good morning everyone. My comments relate primarily to the second quarter of 2005. We will file 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 third quarter and the full year. Additionally I will update the previous guidance with respect to operating margins in our Rail Group and I will provide new guidance for operating margins in our Inland Barge Group.

We are pleased with our second quarter 2005 earnings of $.43 per share. These results compare with earnings of $.11 per share in the first quarter of 2005 and earnings of $.06 per share in the same quarter of 2004. Revenues for the second quarter of 2005 increased 33% over the same quarter last year to $731 million. This revenue level represents the second highest in Trinity’s history.

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

In our Rail Group, North American railcar revenues were 122% higher on a quarter-over-quarter basis. Rail Group sales to Trinity’s Leasing Group were $107 million in the second quarter of 2005 with profits of $11.6 million or $.15 a share. This compared with sales to our Leasing Group in the second quarter of 2004 of $48 million with profits of $3.4 million or $.05 a share. These inner company sales and profits are eliminated in consolidation.

Our European rail business continues to suffer from a depressed market place. During the second quarter, we determined that the goodwill for Europe, based on an ongoing assessment of the market conditions, had been impaired and accordingly it was written off. In addition to the goodwill charge, we recorded a reserve associated with excess and over valued inventory and incurred costs associated with a scheduled shutdown. As a result of these items, the quarterly loss associated with our European assets was approximately $11.5 million. The third and fourth quarters of this year we estimate a significantly smaller operating loss of approximately $3 million per quarter. We currently have fixed assets with a net book value of approximately $57 million in our European rail operations.

Railcar component revenues for North America increased by 45% in the quarter as compared with the same quarter of the previous year. This was primarily due to improved unit sales and increased pricing to offset raw material increases. Our previously forecasted operating margin for the rail segment during the second quarter was 3.5 to 5%. Actual results were 3.5%. When you remove the effect of our European operations, North America experienced a 6.2% margin. Based on our operating performance during the second quarter of 2005, we are adjusting our guidance with regard to operating margins for the Rail Group for the third and fourth quarters to a margin of 5.5 to 6.5%.

This guidance is based on the following assumptions. European results consistent with the guidance provided today, continued production efficiencies in North America, and no significant supply problems in steel or other basic materials.

The impact of unrecoverable steel costs for the second quarter in the Rail Group was approximately $5 million or 1% of lost operating margin. Our North American backlog as of June 30, 2005, consisted of approximately 17,500 railcars with an estimated sales value of $1.2 billion. This backlog is subject to a variety of escalation provisions and firm raw material contracts. Together these items are referred to internally as cost coverage. Cost coverage of the current backlog is approximately 91%.

Our Construction Product Group remains a key part of our earnings diversification strategy. The second quarter is normally strong for this group due to construction-friendly weather. The past quarter provided especially good with revenues up 17% on a quarter-over-quarter basis. Operating profit increased by $8.5 million and margins improved from 9.4 to 12.7%. These improvements were primarily due to improved pricing that offset raw material price increases and more favorable weather conditions.

Our concrete and aggregate business accounted for 56% of the Construction Products Group revenue. The business units overall performance was positively impacted by strong demand combined with tight supply of raw materials. Our concrete group enjoyed the diversified customer base which provides flexibility in the market sectors we target.

Our Highway Products business, which accounted for 30% of the Construction Products Group revenue, is also performing well. On a year-over-year basis, revenues from this unit’s proprietary line of products grew by 5%. We believe the passage of the pending federal highway bill will generate improved results in 2006 for our construction products group.

Our pipe fittings and bridge girder businesses continued to perform at nice levels.

The Inland Barge Group second quarter marked a return to profitability. We are now receiving orders for hopper barges and building a nice backlog. We anticipate Inland Barge revenues of approximately $55 to $60 million in the third quarter and between $65 and $70 million in the fourth quarter, moving to a run rate of about $80 million per quarter in the first half of 2006. We anticipate operating margins of between 7 and 9% for the remainder of this year.

On the tank barge side of the business, we continue to enjoy a strong backlog and at this time we have very few spots open for 2006 deliveries. As a reminder, we are in the process of reopening the hopper barge facility in Louisiana that we closed in December of 2004.

As for barge litigation, we settled one case during the quarter. More details about this case can be found in our 10-Q. Discovery and pre-trial proceedings on the last case are continuing to move through the court system.

In our Railcar Leasing and Management Services business, we reported revenues of $48 million, which were down $23 million on a quarter-over-quarter basis. This is primarily due to a $29 million decrease in railcars sold from the fleet quarter-over-quarter. Total operating profit decreased by $1.4 million due to the profit from car sales in the prior period. And you remove the effects of the car sales, leasing and management operating profit grew by 18% on a quarter-over-quarter comparison. Growing our Leasing and Management Services Group continues to be a key part of our earnings diversification strategy. We plan to spend between $325 and $375 million on net fleet additions during 2005.

We are pleased with the Industrial Products Group’s second quarter performance. On a quarter-over-quarter basis, revenues increased by approximately 6% and operating profit jumped by $1.8 million bringing the quarterly margin to 15%. This business continues to benefit from the cost savings improvements we implemented during late 2003 and early 2004 as well as solid demand in Mexico for our products. The backlog of this business is relatively short, as most customers do not make long-term product purchases.

On a consolidated basis, SG&A expenses as a percent of revenue have continued to decline to 6.6% from 7.8% for the same quarter of the previous year. Cash flow from operating activities was a positive $47 million for the quarter. This is an especially strong result when you take into account that revenues increased by $84 million in the second quarter over the first quarter of 2005. Non-leasing capital expenditures have been reduced and are currently projected to be between $90 and $100 million for 2005. Of this amount, approximately $40 million will be spent on our new railcar plant in Mexico and our new north Texas aggregates facility.

We expect earnings for the third quarter to range between $.44 and $.51 per share assuming normal weather conditions. Overall, our updated company guidance for 2005 is for earnings per share of between $1.20 and $1.35 for the full year. Included in our assumptions for the remainder of 2005 are the deferral of between $10 and $12 million in profit on sales from our Rail Group to our Leasing Group in each of the next two quarters or roughly $.13 to $.16 per share per quarter, improving results in our European rail operations as discussed earlier, continuing to achieve production efficiencies in North American, no significant supply problems in steel or components, normal weather conditions and no unanticipated adverse resolution of legal matters.

At this time, I’ll 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] And first we’ll go to the site of Wendy Caplan with Wachovia Securities. Please go ahead. Your line is open.

Thank you. Good morning. The Barge Group, can you talk with us about the size of the backlog there and the margin in the backlog versus what was posted in Q2? And I know you mentioned in your remarks that you expected the margin for that segment to be between I think 7 and 9% for this year. At the prior peak you got, you reached a double digit operating margin. Can you get back there? And if so, when do you expect to get back to that level?

I guess you asked a number of different questions. And one common question that we get Wendy is the peak earnings question. And I’ll respond to that. And then Bill can fill in with some more of the details. And I guess the peak earnings question really applies to Trinity as a whole in the rail as well as the barge business, which are two primarily cyclical businesses. And I’m really motivated by the fact that our second quarter revenues were the highest in our history. There’s been a very rapid recovery. We need to keep that in mind. It took us nine quarters to go from a low point of $289 million in the first quarter of 2003 to hit $731 million this past quarter. The last time our company went through a cyclical recovery like this, it took approximately 15 years to go from a low point to the high point. And during that time period, a lot of things were happening in the pricing area and we were able to work on our productivity and things like this.

I think our businesses should continue to improve with sustainable demand levels. And fortunately, there’s still a lot of positive signs out there occurring in our markets as I mentioned and Bill mentioned the passage of the highway bill, the energy bill, the demand for coal and basic materials have helped improve the demand for barges and railcars. Both of our orders in those areas, when you look at the barge business, a lot of our orders that we’ve received have been for barges that transport coal and basic materials rather than grain. We continue to see the demand for railcars in North America as more of a plateau rather than a spike.

And we really at this point, have a very strong management leadership team in place in each of our businesses and we’re continuing to see productivity. This has been seen, you saw this in the barge business. Our barge business bottomed out during the first quarter and then it went through a recovery in the second quarter and we had some great results there with productivity improvements in that business. Same thing in our railcar business. All of these factors really play a role in allowing us to return to the peak earnings level that we obtained back in the 90’s.

Long term earnings growth is really hard to precisely predict. I think it’s reasonable to expect that the barge business can obtain the peak levels that they obtained. All of our people are highly focused on improving our earnings in all of our businesses. But we’re currently not providing a specific projection when we will exceed or hit our previous peak earnings. Although I will say that if the factors remain in place, we definitely have the potential during the next few years to surpass our previous results in all of our businesses. We’re seeing good positive signs.

Bill you want to talk about the backlog a little bit more? I think you gave some of those numbers in your presentation.

Sure. Wendy, with regard to the barge backlog, we thought it would be more appropriate just to provide revenue forecast on an ongoing basis. The barge backlog has grown significantly and we are in the process of working on several orders that will add to that backlog. So right now, we’re more comfortable with the revenue forecast on a go-forward basis as well as leading you to a target rate of $80 million per quarter in the first half of ’06. And you’re correct, the operating margin guidance was between 7 and 9% the remainder of the year.

But Bill that seems a little light to me given that you did 8.5% this quarter and with greater operating efficiencies and good pricing and good demand, one would assume it would be a little higher than that. Are you, could you be accused of being conservative a bit?

Well I could probably always be accused of being a little conservative. But Wendy the other factor you’ve got to take into consideration is we are reopening a barge facility in Louisiana and when you reopen a facility, it’s very difficult to judge the costs of the facility and the amount of efficiencies you may lose as you bring up product. So to get to that $80 million run rate, you’ve got to go through the hurdle of bringing that plant back on line.

And Wendy this is Tim, that’s a very good point that you made and I hope our barge management people who are listening to this conference call at some point will hear the point that you’re making there. Cause we’re expecting great results out of that.

I’m glad to help. In the rail business, I just wanted to confirm, I believe you said that there were no, there were not line changeovers in Q2? And could you specify whether you expect them in Q3 or Q4 please?

Yes we have some line changeovers that will be taking place during Q3 and Q4 and there were some line changeovers that, some minor ones that took place during Q2. We are targeting specific orders as we said. The mix of orders that we received Steve do you want to talk a little bit on the mix of orders for the second quarter?

Sure. Yes, we-- our second quarter orders were across a broad base of car types. Tim mentioned the continuing strong demand in the coal market. That was seen in the second quarter with orders that we received. We also received orders in the intermodal sector. Covered hopper cars we have several different production lines making various covered hopper cars. Again strong orders in those areas. Tank car remained strong. And we’ve also seen orders for new gondolas and box cars as well. So again our orders have been broad across various car types.

Thanks very much.

Thank you Wendy.

And next we have a question from the site of Alex Blanton with Ingalls & Snyder. Please go ahead.

Good morning. As you mentioned it would appear that the railcar orders are on a plateau. And have been averaging 18,000 a quarter the last six quarters. You’re not much more above that right now. So one question one might ask is can your margins go back to historical levels and your earnings to historical levels before that plateau starts to diminish? Now you’re moving into Mexico. Mexico is how much of your North American production right now?

Mexico is 30% roughly of our production and we’re targeting it some place between 35 and 50% of our production long term. When we define a plateau we don’t define a plateau in quarters. And we really don’t define a plateau in one year or two year. We’re looking at it is a multi-year demand and that’s basically what our strategy and our planning’s been centered around that. The age of the fleet and the strength of the economy is driving the demand and there should be a long-term replacement demand for a number of years and our whole strategy has been a long-term strategy. And as I said on peak earnings, given the assumptions that we said before, we’re targeting that we will reach peak, meet our peak earnings over the next couple of years. That’s definitely something that all of our leaders in our company have embedded on their foreheads.

Okay what are the margins in Mexico right now compared with your overall margin’s about 6% in North America. But what are they in Mexico as opposed to U.S.?

We don’t disclose our margins in our various operating entities at that level.

You’re going to open a new plant in Mexico. Do you except that will hurt your margins in 2006?

Just like Bill said, our barge facility that we’re reopening will have an impact on our margins during the time period that we’re reopening. When we’re starting a Greenfield plant from scratch, it definitely will have an impact on the short-term, but long-term it will position us to have a competitive benefit.

You’re going to have some greater efficiencies in the U.S. plants between now and then so can we look for higher margins in rail in ’06 despite that new Mexico plant?

Well what we’ll do is in our third quarter and as well as our fourth quarter like we’ve been doing because it’s really hard for you all to prepare a projection. We’ll provide what we think are margins out into the future of what you can expect.

Okay, on that topic, I got pulled away when you were giving your guidance. Could you repeat that, the guidance for the quarter and the year?

Yes, sure. The guidance for the quarter is $.44 to $.51 per share.

Yes.

And the guidance for the year is $1.20 to $1.35.

Okay. All right. Thank you.

And next we’ll go to the site of Stephen McBoyle with Lord Abbett. Please go ahead.

Yes, good morning. Congratulations. First on the barge side of the equation, I can’t help but also come to the conclusion that there may be a level of conservatism there. Can you talk about the facility impact, how quickly that may come up and to the extent that you’ve had some very favorable orders recently that or price levels that would seem to be indicative of past peak margins. When would we actually see some of these recent orders flow through into revenue and specifically is there any benefit that may be seen in the back half of this year or is it more a first half ’06 event?

Well Bill gave guidance for this year on our barge business for the same reason we are in the railcar business because it’s very difficult for the analyst community to project those and we’ll do that in ’06. When we get to ’06, there’s always productivity improvements that you get and then as this market becomes stronger, Bill mentioned that we only have a few number of slots left in ’06 for tank barges. We’ve got a very strong inquiry list for hopper barges. A lot of customers are trying to position themselves for this space and our leadership in our barge business is very sensitive to the supply and demand issues and so pricing that we received for orders on a go-forward basis will reflect the supply and demand factors.

Is there any way to quantify what the second half impact from a margin perspective may be related to the new plant coming online?

Stephen I think it’d be difficult just to quantify it exactly but as you understand the new plant, you know we’ll ramp the plant up at a smaller production rate per week, which puts a little emphasis on the burden rate, a little overhead. And as the plant comes up in both speed and efficiency, the impact on margin will diminish. The rate of speed that that’ll occur, I can’t project at this time.

And then more specifically I guess to the extent that you announced after the Q1 call a $82 million barge order, would you see any of that revenue being recognized this year?

You will see a piece of that revenue recognized in the latter part of third and the early part of fourth quarter.

Okay and turning to the rail margins, you’ve guided for the back half 5.5 to 6.5 and absent steel in this issue, you’re running at 6.2% and absent Europe also. To the extent that steel as that becomes more efficiently priced through the back half, ought to be less of a drag. Any reason why margins would be flat?

Well inclusive in the 5.5 to 6.5 is the projection for a $3 million loss per quarter for the European operations so a little bit of pressure from the European operations.

Okay so Europe is in that?

It is in that.

And what was Europe revenue in the quarter? And what would you expect through the year?

Europe revenue for the quarter I think was in the high $20 million I think it was about $28.

And I guess more broadly as you look that up, when you look at Europe and you made reference to some reduction in production there, does that get you to a level that is consistent with order demand today or is there still an expectation that there are a number of contracts to be won in the back half that may or may not occur?

Are you talking about Europe?

Europe specifically.

Okay. Bill why don’t you--

Yes Stephen first answer is revenues were $28 million as I said for the second quarter.

Okay.

At the European operations is, is still a very fluid situation. Obviously there are orders that we are chasing. If we’re successful with some of those orders we could have improvement sooner rather than later. But it’s a case by case basis. So as we look at the third and the fourth quarter, we’re fairly comfortable with a more conservative loss estimate of the $3 million.

And I think the $28 million revenue run rate is representative of the trough of the market.

So the $3 million loss is not predicated on winning any large programs in the back half?

In the third quarter I’d say from a revenue perspective, it’s fairly solid. The fourth quarter has got some orders that need to come in. But those are orders that we feel good about.

Okay and on the Construction Products group, I was very pleasantly/scratching my head surprised on the incremental margins, $16 million in improvement in operating. You come out to $37 million in revenue. Is there anything specific that you could speak to there other than just the general pricing that drove improved margins?

Yes, when you look at our Construction Products group, we had, we had great weather conditions. We ended up with 90, almost 94% of our working days workable due to favorable weather conditions. It’s a high fixed cost business, which means it has a very strong variable margin. So as you pick up the incremental revenue, you really get a real nice pickup in the operating profit margin in that business.

Any comments with respect to pricing that you may be putting through that division?

The pricing in that division has done very well and has covered the raw material price increases and allowed for a little bit of expansion in margin.

A little bit? When you put it--

Well the rest of it I give it credit to the management and leadership of that group. They’re doing a good job. They’re really, they’re really on top of their business. They’re, they’ve got-- and that was an area that Bill left and we had not had a void, there’s been a tremendous smooth transition with Bill going from executive position in there to the CFO position and Mark Stiles and his group are doing a good job.

So maybe just more broadly, do you anticipate that the demand is sustainable and where do you think margins could ultimately go?

I think the demand level is sustainable. I think the issue you got to look at Stephen is the number of work days that you get. 94% of the quarter is very strong. So as those work days possibly come back to a more normalized levels in the season, you would see a little contraction in the margin.

In fact in the month of July with the hurricane that moved through the south Texas side, we ended up having a little bit of effect but then the skies have cleared and we’ve been hot ever since. And this business is going to benefit dramatically by the highway bill, long term.

Sure. And maybe just last question, just curious on the wind business. What are you doing in revenues there today what may the level of profitability be? And looking out a couple of years, any sense as to how large that business could be? I do know that GE being a customer obviously I think in their last quarter they said they were up some 300% in that business line. Also curious as to whether there’s been some tax incentive discussions with regards to lengthening the tax incentives that may actually drive incremental demand? So maybe just general outlook for wind?

Okay we, we are really positive on the wind business. The energy bill has provided substantial momentum behind that. We’ve got consistency that is occurring and long production runs in our wind tower structure business. We’re looking at doing some expansion in that business. And it’s just we’re bullish that that business is going to be a significant contributor over the next couple of years on the earnings side. Bill you want to share some thoughts on that?

Yes, from the revenue side of the table, the wind tower business contributed about $17 million for the quarter. That’s probably the run rate out through this year. But I would look for ’06 to be an improvement upon that number.

Level of profitability?

Not going to disclose at this time. I think third quarter, fourth quarter we’ll come out with a little guidance in that business as well.

Yes, but it was-- it is a profitable business.

It is a profitable business.

Sure. Thank you very much.

And next we have a question from the site of Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Good morning.

Morning.

Could you give us some color looking out over the next several years as to how both the highway bill and the energy bill, what portions of your business do they touch? And where do you think they’re going to have the-- what part of your businesses will they have the biggest impact on?

Yes I, Bill this is Bill McWhirter. From the highway bill perspective, obviously it’s going to touch both our concrete business and our highway products business. I think it will touch our highway products business to the greatest extent. That business is one that has really experienced a slow down with this lack of a highway bill. And so a strong highway bill at the number that’s there, $286 billion should really improve that business as well as an emphasis on safety related products.

The energy bill obviously has a direct correlation to our wind tower business. It provided the tax credit for an additional two years to 2007. So we’ll see strong movement there as well.

And then both these businesses have an impact on our barge and our rail business on a number of different areas. The energy bill affects the ethanol business and it’s a big positive there. The basic materials to support a lot of the construction will move over the barges and the rail and so it’s, it’s really a good boost to all of our businesses.

Any, any ability on the highway safety products area to indicate the what, what kind of rough magnitude impact we could see over the next two or three years?

I think that’s a little, it’s still a little bit early on this. We will say that we’ve seen just in the last week or two an up tick of inquiries and order levels and there’s a, there’s a whole sense of optimism that’s in that business as a result of knowing that there’s funding there. It was beginning to drag on and on and on and now it’s like a nice cool breeze blew through to kind of motivate everybody.

Could you see-- I mean will you see a meaningful impact on your bridge building, on your bridge business, your structural steel business going into bridges, will that be meaningful to you over from the transportation bill?

Absolutely.

Roughly how large of business is that for you right now Tim?

Bill go ahead.

Bill it’s approximately $40 to $50 million a year in annual sales right now.

You could see a meaningful improvement in that over the next two or three years?

We’re doing a strategic planning. In fact, our people are doing the strategic planning as we speak on that business and we’ll try to determine where we want to go with it.

Okay. Thank you much.

And next we have a question from the site of Louis Apear with Oppenheimer. Please go ahead.

Formerly, you gave us guidance on ’06. Have you raised your estimates as far as earnings are concerned?

I must have missed that meeting where we gave guidance on ’06. What type of guidance are you referring to?

Okay that earnings for ’06 would be in the range of $2.50 a share.

No I think you may have been talking to an analyst or somebody on that. We, we’re currently in the process of doing our strategic planning and then we’ll be doing our budgeting as we go in the fall and I think you would look for that to be in the fourth quarter type guidance number that we would provide. There, there must be some confusion there. But we, we have not provided that guidance.

Thank you very much.

And next we have a question from the site of Barry Haimes with Sage Asset Management. Please go ahead.

Hi I had a question relating to the coal car business within rail and my recollection was that you were putting in some new tooling there to try and improve your costs. And I wonder if we can get an update on how that’s going? When that might finish up? And you were talking about possibly opening another line in a contention on the success there. And when that all might happen? Thanks.

Yes, those plans are still in place. Martin Graham who heads up our rail business is keeping it very, in the freight car side, a very close eye on this. He’s personally involved with it. He’s got a lot of experience. And the people have a really good game plan to upgrade the tooling in that business and that will occur in the late third quarter, fourth quarter time period.

Steve keeps a-- Menzies keeps a very close eye on the coal business from a sales and marketing standpoint. And has given Martin the go ahead from his perspective along from a leasing company perspective of saying let’s go ahead and look at putting in a second coal line. You want to talk about that a little bit Steve?

Sure. With the orders that we took in the second quarter, we have an extended backlog on our existing coal line. And we think it’s opportunistic to bring our second coal line on in the first part of 2006. And that we would have some preferred delivery slots with those cars available. The coal market continues to be a very strong market. Energy price, alternative energy prices such as gas remain high which encourages use of coal. And we see the replacement factor for that fleet also contributing to ongoing strong demand for coal cars. So we’re, we’re very excited about the opportunity to expand our production capacity for coal. And we’re, we’re moving forward with those plans.

Great. Just want to follow-up if, if I were to come in to buy a coal car today, how far out delivery am I looking at?

Well if you’ve cash in fist, then we’ll probably see what we can do to get you some in the first quarter, first or second quarter, first or second quarter.

Great. Thanks so much. Appreciate it.

Okay.

Thank you. And next we have a question from the site of Connor McGlofflin (ph) with JLF Asset Management. Please go ahead.

Hey guys. Congrats on a great quarter.

Thank you.

Just a quick question I happen to, when we talk historical margins, went back and looked at kind of the late 90’s, what you guys are doing. It looks like in the late 90’s you were doing earnings north of I think was 990, north of $4.00 and operating margins just north of 10% and if you do the math now, you know see our account entire now, but it implies when you do all the math that you guys could see that EPS, that prior EPS implies like around $3.60, $3.70 in earnings and you know you said you’d hope to potentially go beyond that. So it seems safe to say you’d be targeting some where north of a $4.00 earnings perhaps a number at some point when you get to the peak. Cause the thing that was interesting was in ’98 it was like you did earnings, somewhere in the low $2.00 range and then all of a sudden it hopped up to north of $4.00. Just given where, where we are in the cycle now, I was just curious if you could speak to a little bit in terms of timing or the kind of ramp of getting back to the peak earnings just given what happened last time in the cycle?

Yes, I don’t know whether you heard me give that at the beginning of the conference call when the question started, because that is a common question. I’m glad that you went through those numbers again so our leadership and management people can understand that this is targets that we’re looking at and we’ve got to have our strategies and our game plans pointed in those directions. And our people are all focused on improving our earnings and we think it’s a key factors that will allow the demand that’s to be sustainable in our business, coupled with the energy bill and highway bill that all of this is obtainable over the next few years.

Okay, well just out of curiosity cause I wasn’t focusing on the industry back then when you went through the, when you had the peak, is there anything different about the way the cycle is flying out now versus late 90’s when you went from low 2’s all of a sudden up to $4.00?

Well timing is one crucial thing. That this recovery has occurred much quicker than the over recovery occurred. I think that you look at our leasing company and our railcar business and we’re building our leasing company right now as a key strategy for a number of different reasons. And it, it’s a deferred profit that Bill gives, it-- you have to factor that into the equation. Steve you got an opinion on the market?

Well I think again as Tim pointed out, the ramp up in the market, this has been a very quick ramp up compared to that period before. And we’ve also had different buying influences in this market. We still have certain customers returning to the marketplace. We now see railroads are buying cars. We have other leasing companies back in the market buying cars. So we, we’re starting to see a strong broad based recovery in demand by customers as well as by car type. And again that, that took place over a longer period of time leading up to the prior peak.

Okay. Great. Thanks guys. Keep up the great work.

Okay, thank you.

And next we have a follow-up question from the site of Wendy Caplan with Wachovia. Please go ahead.

Yes just a quick question. The run rate, corporate expense and elimination numbers were high in the quarter. What should we expect Bill in terms of the run rate for the second half?

Wendy, I think the corporate expenses were about 1.2% of sales and I think the corporate expenses will run anywhere between 1 and 1.3% of sales on a quarter-to-quarter basis. So as the sales go up, you’ll see that number grow a little bit. On an elimination basis, I gave pretty specific guidance as to the third and fourth quarter. Where I said it would be between $10 and $12 million in each of those quarters.

Thank you.

Thank you Wendy.

Brian we’re going to have time for just one more question.

Okay and our final question comes from the site of Stephen McBoyle with Lord Abbett. Please go ahead.

Great. Thank you. Tim I just wanted to clarify. I think earlier in the comments you made the point that in the next couple of years, you expect to surpass all previous results. Can you just elaborate on that? Is that with regards to revenue earnings within certain divisions or just as a whole?

I guess I’m talking just as a whole and it’s, it’s not a rich interim projection as I said. We’re not giving projections of when and if our earnings will surpass. We are talking a lot about this internally. It all tied to sustainable demand levels for our businesses and improved productivity that we have going on in place. We’ve got good teams of people. Large numbers of teams of people working on these things. And I think if these factors remain in place, we definitely have the potential during the next few years to surpass our previous results. I think this is just a gut feeling that I have that things are feeling really good and we’ve got a lot of momentum going. And you’ve seen how the momentum in this company and this business can change quickly through the last couple of quarters. And I think we can continue to make those type of improvements, but we’ve got to have that sustainable demand in our businesses.

Well with the wind at your back, best of luck.

Thank you.

Thank you. And that was the final question. I’d like to turn it back over to Mr. Mitchell. Please go ahead.

Thank you Brian. Thanks for your help today. This concludes today’s conference call. Remember a replay of this call will be available starting one hour after this call ends today through midnight Thursday, August 11th. The access number is area code 402-220-7330. Also this replay will be available on our website located at www.trin.net. We look forward to visiting to you-- visiting with you again on our next conference call and thank you for joining us this morning.

Thank you. And that does conclude today’s teleconference. You may now disconnect your lines.