Trinity Industries Inc (TRN) 2005 Q4 法說會逐字稿

Good day. All sites are on the conference line in a listen-only mode. Please note this call may be recorded. I would like to now turn the program over to Mr. James Perry, Treasurer of Trinity Industries. Please go ahead, sir.

Thank you, Tasha. Good morning, from Dallas Texas, and welcome to the Trinity Industries fourth quarter and full year 2005 results conference call. I'm James Perry, Treasurer for Trinity. Thanks for being with us today. In addition to me, you will hear today from Tim Wallace, Chairman, President and Chief Executive Officer, Steve Menzies, Group President, Tank Car Leasing and Services, and Bill McWhirter, Vice President and Chief Financial Officer. Following that, we will move to the Q&A session.

A replay of this conference call will be available starting one hour after the conference call ends today, through midnight on Thursday, March 9. The replay number is 402-220-0116. 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.

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 estimates, 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. The Company has received a request from various entities affiliated with it's Director, and Craig Duchossois, to register 3.15 million shares of common stock.

This is pursuant to the exercise of a demand registration right entered into at the time of the acquisition of Thrall Car Manufacturing Company. Trinity is in the process of complying with it's obligations pursuant to this demand. This will fulfill the Company's obligation to register common stock under this agreement. The Company has also agreed to register an additional 500,000 shares for sale, that were required by Duchossois-related industries. In December of 2004 an affiliate of Mr. Duchossois, sold 4 million shares that were acquired in the Thrall acquisition.

I will now address our balance sheet. At December 31, our borrowings at the corporate level were the $300 million of senior notes, $2.6 million of other indebtedness, The leasing company's debt included a $130.1 million of equipment trust certificates, and $256.3 million outstanding under our railcar leasing warehouse facility. At December 31, our debt to total capital was 37%, up from the comparable amount of 32.6% at December 31 2004, principally due to lease fleet expansion. At December 31, our cash position was $150.9 million.

In February 2006, Trinity converted the outstanding preferred shares into just over 2.67 million preferred shares of common stock. These shares were already included in previously reported fully diluted share count. The impact of this transaction is determination of the preferred stock dividend.

Now here is Tim Wallace.

Thank you, James. And good morning, everyone. I am pleased with our progress. 2005 was another growth year for us. Revenues increased 32% to $2.9 billion. During the past two years, our revenues have doubled. Our operating profit improved dramatically, from 14.1 million in 2004, to 170.4 million in 2005. In the fourth quarter, we set an all-time revenue record.

All of our business segments improved their profitability over the fourth quarter last year, steps we took to reposition our Company during the downcycle, are now paying off. Each quarter we continue to build on the momentum from the previous quarter. Occasionally, we experience some unanticipated material issues as a result of our tight supply chains. Fortunately, we have been able to overcome spot material shortages, and continue to improve our earnings.

On the surface, our European Railcar business looks fairly bleak. From an internal perspective, we're making progress. I expect the consolidation actions we have taken during the downcycle to pay off when the market recovers. It appears we may have hit the bottom of the cycle in Europe during the fourth quarter. Our backlog of orders at the end of the fourth quarter in Europe was 334 units. Fortunately, we sold some railcars recently. We shipped 513 units during the fourth quarter, versus 362 units in the third quarter.

Our shipments for the next few quarters will remain between 250 and 300 units, until we build a stronger backlog. We expect to lose between 3 and $4 million in operating profit per quarter for the first half of the year. We continue to closely monitor our European Railcar business activities, as we cut costs, and review our strategic alternatives.

Our fourth quarter North American railcar shipments totaled 5918 units. Our 2005 annual shipments reached 22,934 units. This was a 52% increase over 2004. We expect our quarterly shipments to fluctuate between 6,000 and 6,300 units during 2006.

Our short term objectives for our North American rail businesses are to continue to improve our profitability through productivity initiatives, pursue orders that extend our production lines, launch new production lines in Mexico, and enhance our ability to make quick, efficient, product line changeovers. Demand for several of our railcar products in North America continues to be robust. We are receiving a steady stream of inquiries on a variety of railcar types. Steve Menzies will provide more information on this subject during his presentation.

During the fourth quarter, we successfully installed new tooling on our coal car production line. In January, we launched our second coal car line, and we're planning to install a third coal car production line later this year. We will begin shipping railcars from our new plant in Mexico during the second quarter of 2006. We have already sold some specific railcar models that will facilitate training our new workers in Mexico.

We are planning to expand our production output at our new facility over the next 18 to 24 months. Long term we are optimistic about our overall competitive position. Trinity has by far the largest amount of low cost manufacturing capacity in Mexico.

As for the Company as a whole, I remain very optimistic about both our current opportunities and those on the horizon. Our Barge business has a very strong back log, and our customers are continuing to discuss opportunity for future business. And in January, we announced a multiyear agreement to manufacture barges for Ingram Barge Company. This is a win/win for both companies. Ingram is ensured a consistent flow of new barges, and we have a long term base load of production, with the ability to adjust prices for cost increases. We're currently looking at a variety of ways to increase our barge production capacity and maximize our flexibility.

Our Construction Products businesses are continuing to perform well. Weather conditions in the southwestern part of the United States were very construction-friendly during the fourth quarter. During January, we had good construction weather as well. During the last few weeks, winter weather has impacted our construction-related businesses a little bit.

Demand remains strong in our Concrete and Aggregate businesses, we're continuing to enhance the overall value of our concrete and aggregate businesses, by adding some strategic new greenfield operations.

I'm very pleased with the way our Structural Wind Tower business is taking shape. We have a good backlog of orders. This is a key growth business for us during 2006. Wind tower structures are very large diameter objects, which require specific manufacturing expertise. Trinity is fortunate to have a high level of competency in fabricating large diameter shapes like these. This is an especially good business for us, since we are able to convert some of our existing manufacturing facilities, in order to pursue these opportunities.

Trinity's Leasing Company continues to play a vital support role for our railcar manufacturing business. The demand for railcar leasing remains strong. We're positioned very well to be able to provide a large number of new railcars in a strong market. Steve Menzies will provide more details about this business in his report.

As you can tell, I was pleased with our fourth quarter results. I am also very excited with the momentum are businesses are experiencing. I remain very optimistic about our opportunities in 2006.

Now, I will turn it over to Steve Menzies who will make his comments.

Thank you, Tim. Good morning. I'm going to 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 fourth quarter. This was a continuation of the strong pace that was set in early 2004, that continued throughout 2005. For more than 26,700 railcars were ordered industrywide during the fourth quarter. This figure was significantly greater than the quarterly average of 19,000 railcar orders over the previous eight quarters. Industry orders for the year 2005 totaled more than 80,900 railcars, well exceeding the almost 72,000 railcars ordered in 2004.

Industry order levels have increased each of the last four years. Strong railcar demand is reflected across multiple key market segments. Demand remains strong for both Powder River Basin and interior coal, as utilities continue to use coal as the preferred fuel for power generation. Demand for covered hoppers that can carry cement, resin, and agricultural products is also high. The growth in renewable fuels, particularly ethanol, has also caused a surge in tank car demand. In addition, strong prices for scrap steel are encouraging the retirement of some older railcars.

During the fourth quarter of 2005, Trinity received more than 7,700 rail car 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 fourth quarter that will extend production line for a variety of cars. Specifically, we received orders for covered hoppers for agricultural products, resins and cement, coal cars, railcars for coiled steel and scrap steel, box cars, tank cars, and auto racks. Our customer mix was diverse. In addition to railroads, third-party leasers, industrial shippers, and utilities, placed orders with us during the quarter.

Current order levels and inquiries indicate strong momentum for a variety of railcars, continuing into 2006 and 2007, supporting our production and sales strategies. In fact, we have received substantial orders during the first quarter of 2006, including orders for coal cars, tank cars, box cars, auto racks, and covered hoppers, reflecting continued broad-based strong demand. Thus far, our orders through February, are higher than orders for any full quarter since 1998.

Industry-wide production backlog at the end of the fourth quarter increased to more than 69,400 railcars. Industry backlog has remained stable during the past five quarters. This indicates that the industry order levels are keeping pace with increased industry production, and that the supply chain is meeting current demand. However, we believe tight supplies of railcar castings, are critical for further increases in production beyond current levels.

Trinity's railcar production backlog in North America increased 11% to 18,700 railcars at the end of 2005. With the momentum of inquiries and orders I referred to earlier, we anticipate reporting an increased backlog at the end of the first quarter of 2006 as well. Trinity Industries Railcar Leasing and Management Services group continued to grow its railcar fleet during the fourth quarter, taking delivery of approximately 1,700 new railcars. This represents about 29% of Trinity's North American fourth quarter shipments.

For the year ended December 31, 2005, Trinity Leasing took delivery of more than 5,200 new railcars, 23% of Trinity's 2005 North American railcar shipments. Our operating lease fleet now includes a well diversified portfolio of more than 24,800 railcars, as compared to 20,300 railcars that were in our fleet on December 31, 2004. In addition, we manage more than 63,000 rail cars that are part of our customer's fleets. Our strategy is to develop solid long-term relationships with the end users of our railcars. This will help us grow our leasing business, resulting in a significant stable earnings stream.

Our committed lease backlog at the end of the the fourth quarter, increased to 5,700 railcars, or 31% of Trinity's North American production backlog. This backlog extends through 2006 and into 2007. Our fleet utilization increased slightly from 99.5% at the end of 2005, compared to 99.4% at the end of the third quarter of 2005, and 99% at December 31, 2004.

The average age of the railcars in our lease fleet is 5.2 years. Our average remaining lease term is more than 6 years. These rates continue to rise as a result of the 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 the rising 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 fourth quarter of 2005. We will file our Form 10-K this morning. You will find more details there for the year ended December 31, 2005.

During my remarks, I will provide earnings per share guidance for the first quarter, and the full year of 2006. Additionally, I will provide new guidance with respect to operating margins in our rail and inland barge groups. We are pleased with our fourth quarter 2005 earnings of $0.67 per share, before the $0.18 charge associated with the European assets. This compare with results of $0.65 per share in the third quarter of 2005, and a loss of $0.08 per share in the fourth quarter of 2004. Revenues for the fourth quarter 2005 increased 25% over the same quarter last year, to $781 million.

Our earnings of $0.67 per share exceeded the top end of our previous fourth quarter guidance by $0.20 per share. We attribute this performance principally due to the following items. Strong operating performance in our North American railcar production facilities, resulting from line continuity and efficiency gains, better-than-anticipated weather conditions for the Construction Products segment, and our costs for certain raw materials were more favorable than projected.

At this time, I will discuss the performance of our individual business segments. Our Construction Products group, which plays a key part in our earnings diversification strategy, provided revenues which were up by 27%, when compared to the same quarter in the previous year. Operating profit increased by 7.4 million, and margins improved from 4% to 7.6%. Our Concrete and Aggregates business accounted for 53% of the group's revenues. Our Highway Products business, which accounted for 31% of the group's revenue, is also performing well. Revenue from this unit's proprietary line of products continues to be strong.

Our Fittings and Bridge business, which account for the remainder of the revenues, both of these businesses performed well during the quarter. The Inland Barge group's fourth quarter performance was the strongest we have seen for some time, posting revenues of $82 million, and operating profit of 9 million. Our December 31, 2005 backlog of work is approximately $335 million, versus 100 million one-year ago. This backlog does not include any barges associated with the announced Ingram order. We continue to have a strong inquiry list at this time.

We anticipate owned barge revenues of approximately 75 to $90 million per quarter during 2006. Operating profit margins are expected to range between 7.5 and 8.5% for the first quarter, with an average margin for the year of between 9 and 10%. The first quarter projected margins represent orders in our backlog with less pricing strength, than those that will be delivered in the latter part of the year.

We are pleased with the Energy Equipment group's fourth quarter performance. On a quarter over quarter basis, revenues increased by approximately 49% to $75 million, and operating profit improved by 4.3 million, bringing the quarterly margin to 13.8%.

Our current backlog for Structural Wind Towers is strong, and we believe wind energy will continue to become more competitive with traditional energy sources. We anticipate revenues for the Wind Tower business to grow to $120 million in 2006, compared with approximately 67 million in 2005, and 11 million in 2004.

In our Railcar Leasing and Management Services business, we reported revenues of $58.6 million, which were up 20.9 million, on a quarter-over-quarter basis. Total operating profit increased by 6.2 million, due to the additions to fleet, improved utilization, increased lease rates, and car sales that occurred during the fourth quarter. Growing our Leasing and Management Services group continues to be a key part of our earnings diversification strategy. For the year ended 2005, we had car sales from the fleet of $35.4 million, with profits of $8.4 million. We plan to invest between 400 and $475 million in net fleet additions during 2006.

In our Rail group, revenues were 31% higher on a quarter-over-quarter basis. Rail group sales to Trinity's leasing group were 133 million in the fourth quarter of 2005, with profits of $20.5 million, or approximately $0.26 per diluted share. This compares with sales to our leasing group in the fourth quarter of 2004 of 54.7 million, with profits of 5.3 million, or $0.07 per diluted sales. These intercompany sales and profits are eliminated in consolidation.

Our European Rail business continues to suffer from a compressed market. In the fourth quarter, cash flow projections from this business indicated an impairment of the carrying value of the European assets. As a result, pursuant to FAS-144 we recorded a noncash impairment charge of $14.2 million. The total incurred loss, inclusive of this impairment charge and increased warranty charges, was approximately $22 million for the quarter.

At our current build rate, we expect to continue to incur a quarterly loss for the first half of the year of between 3 and $4 million. Our previously forecasted operating margins for the rail segment during the fourth quarter was 6.5 to 7.5%. Actual results were 6%. When you remove the effect of the European operations, North America experienced an operating margin of 10.9%.

Based on our current operating performance, and the quality of our backlog, we are providing first quarter guidance for the North American Rail group of a margin of between 9 and 10.5%. This guidance is based on the following assumptions. Continued production efficiencies in North America, and no significant supplier problems in steel or other basic materials. There was no unrecoverable steel costs for the fourth quarter in the Rail group.

Our North American backlog, as of December 31, 2005, consisted of 18,764 railcars, with an estimated sales value of $1.4 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 93%.

On a consolidated basis, cash flows from operating activities was a positive $110.8 million for the quarter. Non-leasing capital expenditures are currently projected to be $115 million for 2006. We anticipate consolidated earnings for the first quarter to range between $0.58 and $0.65 per share.

Overall, our Company guidance for 2006 is for earnings per share of between $2.60 and $2.80 for the full year on a fully diluted basis. Included in our assumptions for 2006, are the deferral of approximately $53 million in profit on sales to the Rail group from our leasing company, or roughly $0.63 per share. Results of our European Rail operations as discussed earlier, continuing to achieve production efficiencies in North America, no significant supply problems in steel or components, normal weather conditions, and no unanticipated adverse resolution of legal matters.

In our earnings release yesterday we provided a reconciliation of the non-GAAP term EBITDA, EBITDA for the year ended December 31, 2005 was approximately $290 million.

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

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

Thank you. [OPERATOR INSTRUCTIONS] One moment while we queue. It looks like we will take our first question from the site of [Allison Pulinack] with Wachovia Securities.

Hi, thank you. Good morning. First, can you talk a little bit more about Mexico? What percentage of your production is currently now there?

You're talking about our railcar production in Mexico?

Exactly.

We're not totally disclosing all of the percent of production that we're shipping out of Mexico. But good enough rule of thumb is somewhere around a third.

Okay. And I know you talked previously about targeting 35 to 50% production there. Are you still looking at that?

Yes.

Okay.

It depends on really how strong the market is, and how high our production rate runs though.

Okay. And then next, great backlog. How long does your current backlog go out for?

That is a little bit of a difficult question, because our production lines, we have several of them running, and some extend at variant lengths, depending on the particular car type that we have. So generally speaking though, we've got some space available this year, but not much, and a lot of the production lines run into '07.

Okay. Great. And then just last, really great margins in the quarter, where do you think they can go? Do you kind of have a targeted range in mind, looking forward?

We don't really give much more projections on our margins other than what Bill gives for the various groups. But you can be rest assured that our leadership is focused on improving margins every way we can.

Allison, as a follow-up, you know, we did give guidance on the barge group of 9 to 10% for the full year. And then the guidance for the year of $2.60 to $2.80 includes our assumptions on margins throughout the product lines.

Okay. Great. Thank you.

Thank you. We will move next to the site of Kevin Maczka with BB&T Capital Markets.

Hi, guys. Good morning.

Good morning.

A question on the lease spending for next year. You said you plan to spend 400 to 475 million to expand the lease fleet. Will most of that show up in elimination? I assume the elimination, the big number for this quarter, that represents the spike in your lease fleet spending.

Yes, that's correct. All of the sales to the leasing company direct will show up in eliminations.

Okay. And what else is in there? I know that is the majority of it, but that is not all of it.

There is a little bit of product sold out of our component group into the Rail group, and various products that we move around within our businesses, but not much. It is primarily leasing.

And that line item, that revenue line item eliminations is often pretty volatile, and it is hard to forecast. How should we be thinking about that for the year? The 400 to 475 then is a pretty good -- ?

The 400 to 475 is pretty good. In addition to that, I gave you guidance that we were looking for a deferral of profit of around $53 million.

Okay. A question on the raw material side. You said, you talked about this cost coverage, and the fact that you've got the escalators in place for 93% cost coverage. But you also said part of the upside this quarter was on better-than-expected raw materials. I guess just help me understand, how can that fluctuate in a quarter when you have cost coverage like that?

Well, to the extent that you have escalation provisions in the Rail group, we also have a lot of products that we sell daily on shorter backlog terms, and within those product lines, you will find that we've had some good buys, particularly on the sheet steel side.

Okay. And just one more question on the Barge side. You haven't talked specifically about backlogs, or capacity there. Can you say anything more now, about your capacity and utilization there?

Well, our Barge business is booked pretty solid for 2006. And we're booking orders into 2007. I said in my statement that we're looking at ways of freeing up additional capacity. We have some capital expenditures programs in place.

And all of our barge people are taking steps to try to figure out how we can increase capacity. We're optimistic that we will be able to increase capacity in that area. Our barge production moved up in the fourth quarter, and will be about the same level in the first quarter, and then it should move up in the second and third and fourth quarter a little bit, as far as units.

We're not really reporting specific units, because we have a mix of tank barges and hopper barges, and the ratio of that gets confusing depending on which barge we're shipping. We normally ship a lot more hopper barges, which transport grain and coal in aggregate, than we do the tank barges. But generally speaking, we are increasing our production, and our backlog is booked pretty solid into, through this year, and into next year.

Okay. And I couldn't quite keep up with you, and write fast enough, but did you say 75 to 90 million as a quarterly run rate for revenue for that unit?

That's correct.

And that's a 7.5 to 8.5% margin going to 9 to 10%?

It is a 7.5 to 8.5% margin in the first quarter. Looking for a 9 to 10% margin on the year total.

Okay. Thanks, guys. Great quarter.

Thank you.

[OPERATOR INSTRUCTIONS] We will move next to Alex Blanton with Ingalls & Snyder.

Good morning. Congratulations. Your stock is at a new all-time high this morning. What are the potential margins in the Rail business? Were you 6% in the fourth quarter. But were you only at 4.8% for the year. And did you give a margin for the first quarter for Rail?

Yes, I gave a margin for the North American Rail group.

North America, but not the whole thing.

Not the whole thing. I gave North America of between 9 and 10.5, and then I guided Europe at a 3 to $4 million loss for the quarter.

Why how does that come out though, in terms of the margin for the quarter?

It would be slightly less than the 10.9. I guess I will do the math here for you in a second. Just for the first quarter?

Yes.

Well, we got to let them do some of the math.

Well, I would have to have the sales figures for those two groups. But the real question here is, while you're doing that, where could those margins go? In the past, they've been a lot higher than that. And the parts margins, I mean 10 or 15 years ago, you were making a lot of money on the parts, but then competition came in from Johnstown, and those margins went down, and so I have no sense of what the potential is at the moment.

It is probably hard, that is why we've gone ahead and tried to give as much guidance as we can for the quarter and the year, because when you're increasing your production, and then you're working on productivity improvements, like we are, sometimes these things happen faster, sometimes they happen slower, and when you're launching new lines like we have, with the coal car lines, and then the new lines that we have going in Mexico, it gets very difficult to predict precisely where the margins are, and you really can't compare where we are right now, with where we were in the past, because we didn't have this European factor. And we didn't have this major transition that we've been going through --

That's really why I'm asking, because what you've said is you're talking about orders sort of plateauing. I mean it is hard to imagine that we could have more than 100,000 a year in production. But that margins are going to go up, so a lot of your earnings growth from here is going to come in that sector, but what is the potential? That's what I'm trying to get a sense of. Are we looking at, you know, going to 8% overall? 10% overall 12% overall? What is it?

When you're dealing with a situation like I said, Alex, that you have so many different factors going on, and you have the situation that has occurred in Europe, your potential number that you're looking for would be more of a purified potential if we didn't have the other issues that would be dragging down our normalized margins.

And so I think it is easy to assume, and then you've got the price of steel and the price of components that are in our railcars now, that weren't in our railcars, before, so the percent is a tricky calculation to deal with, but it is safe to assume that with the people we have running our Company now, they're targeting at trying to beat the margins that we had in the last peak on an overall basis, when you pull out the handicap that we have in Europe.

Okay. But that isn't an answer. I mean what is the level of margin we're talking that you're targeting?

Well that's about as much answer as I'm going to give you on that. I'm sorry.

Okay. All right. On the barge side, you had margins of 11% in the December quarter, but you had only 6.5% for the year. And you said 10 to 11 for this year. So actually, you're looking for margins to ease off a bit? From the December level? Is that because of what is in the the backlog?

Alex, we actually guided to a 9 to 10% for the year.

Right.

With the first quarter of 7.5 to 8.5, and we said the first quarter reflects some orders coming through the process line, that did have less pricing strength in them when they were taken.

But you had very profitable ones in the fourth quarter, I take it?

Well, as Tim said earlier, it has a lot to do with the mix of barges flowing through the cycle at any one given time.

And the productivity, is to get this overall, when you start off a quarter with 7 to -- did you say 7 to 8?

Yes.

7 to 8 and then you end up at the end of the year with a much higher number, one would think that the end of the year margins would be higher than what he is giving. And so we also, productivity improvements is a very difficult number to precisely predict, on what we will get. We had better productivity improvements in our barge business last summer and in the fall than we anticipated, and we're at a point now of wondering whether those productivity improvements are going to keep moving as quickly as they can, but normally when you increase the production as fast as we have, and you get the quick productivity improvements, you have it leveling out a little bit.

Okay. Going on to something else quickly, your forecast is 6,000 to 6,300 cars per quarter. But based on the order rate, what was the order rate in the fourth quarter again? I missed that figure.

Trinity's orders for the fourth quarter were 7,700.

So almost 8,000. And it would seem like you made a very conservative forecast here at 6,300. Based on where the orders came in, in the fourth quarter, and your 6,300 would be 24,000 for the year, but that would be a fairly, I mean that wouldn't be as big of a share as I would have expected so it looks to me like -- ?

Well, let me help you understand.

It is is a conservative forecast here for production.

Well, I don't think it is conservative. One of the things that Bill did mention is, you got the casting limitations that the industry has. And then you also have the fact that we're launching a new facility during this year, with production lines, and then we've got some changeover of our production lines that are occurring, and this labor force that we have in place right now, a lot of the people that are on the production lines have probably got a year to a year and a half experience.

We try to get consistency of orders running through the shop, so we can get them that baseline training, and this year as I said, one of the things we're focusing on is training them how to make changeovers. So we have quite a few changeovers in our production line that long-term, we need to get this production force to where they have a high level of competency of making quick changeovers, and then that way, we can expand our sales and marketing efforts into the full portfolio of products we have.

We have, for the last couple of years, highly focused on receiving orders that will allow us to get up to this productivity level, to get this new work force trained. And then you will probably see hopefully our strategy in the '07 and '08 time period will be going after a wider variety of orders with this work force that we have, and be able to increase the production from there.

And since your capacity constrained, are you able to price well now?

Well, when the demand is stronger than the capacity, you usually get some pricing positive action.

Finally, what do you expect the leasing revenues to be? That's by far the most profitable business.

We haven't provided guidance on the leasing revenues.

I thought you said --

No, I gave the leasing revenues for the period.

Yes, and then we gave the CapEx that was on our programs.

Okay. Thank you.

We will take our next question from the site of Steven McBoyle with Lord Abbett. Please go ahead.

Yes, thank you. Congratulations. First, with regards to the Wind business, the doubling of revenue '06 versus '05, can you talk about number of customers serving there? You have in the past talked about having to increase capacity, can you just elaborate on what have you to do there through the year to satisfy that 120 in revenue, and also to talk about what the margins would be anticipated for the full year in that business?

Okay. In that business, when we're growing like we're growing, we're not projecting margins, because it is pretty obvious that you've got that type of spike-up in growth. So productivity improvements need to kick in, and we're very confident they will. We are also, the order level that we have on that is firm orders. And one of the reasons Bill was confident enough, I mean the primary reason Bill was confident enough to give the revenue, is the strength and the solidness of our backlogs.

This is a geographically-based business that freight transportation limits you a little bit on how far you can serve. Fortunately, our plants are strategically located for some significant wind sources, of where they're putting in wind farms, in that area. And we're quoting orders to a variety of different customers that we have business with, but we don't really disclose which orders come from which customers.

Just curious, where are the largest installations likely with wind farms over the next couple of years?

The wind farms we're serving are in the western part of Texas primarily, and the midwestern part of the United States. That's kind of the market that we're directing towards. There is a big wind source out in the western part of the United States. And the northwestern part as well. Or the midwest northern portion. And then there is some coming up in the eastern part of the United States.

And just to clarify, you're going to be able to satisfy that revenue stream with your current capacity?

Oh, yes. Yes, in fact, we're doing the same thing in this business that our management has got a high degree of expertise in this area, Mark Stiles runs this business, he is doing the same thing, in the Wind business that he did in the Barge business, and that is ramp it up, and get the people in place, and then put people focused on how can we grow this business and improve the revenue and margins in this business, and so our strategy is tied right into that area. We have a corporate-wide strategy of looking for sources to diversify our revenues in nonrail-related businesses, and we're doing a pretty good job in that area.

I would agree. Just trying to appreciate though, I mean this could be a meaningful earnings driver through the year, given 14% margins in the quarter, and the doubling of revenue through the year. Any indication as to what this business could earn from a margin perspective?

Well, we will be much better equipped to talk about and project those earnings, as we move through the year, so our second quarter we will have a better understanding, and then our third quarter will even have a better, so again it is the productivity improvements of ramping up as aggressively as we're ramping up. And it is just best for us to observe what we can, as we go along, and then make projections of what we think is a realistic range. But you can see what we were able to do last year from the numbers.

Yes, I have. Okay. Would prefer you to do that. So fine. And just on the barge side of the business again, just trying to appreciate the guidance in Q1, and just whether it's another level of conservatism, I guess one way of asking is in the fourth quarter, you had anticipated 8 to 8.5%. You came in as 11. Pricing is getting better. Your backlog is obviously up meaningfully year-over-year and also sequentially, and guiding higher, potentially, revenues in the first quarter. Just trying to appreciate again why margins ought to decline sequentially, while they beat your expectations in this quarter itself?

I think Bill answered that question a couple of times now, as when you sell something and it is at the end of the down cycle, moving into the up cycle, there are prices that you commit to, and those orders are being flushed out.

It is very similar to what we were in last year in a position where we had some railcars that had some steel pricing, or we had had some barges last year that had some steel pricing, and there is not much we can do about a price, once it is fixed, and we've got our costs, but we can improve on the productivity that we can, but I don't think that is a real conservative number. We're this far through the the quarter, so we have some vision on what we think the performance will be.

Fair enough. And can you just, on the coal car strategy for the year, you talked about ultimately a third line by the end of the year? How many cars could we produce through this upcoming year, coal cars?

We don't disclose that number in units that we have. What we do disclose is the number of lines that we are bringing online, and then at the same time, each of these new lines has a level of productivity when we're converting over, on getting that work force trained. But fortunately, the second line that we brought in, it was a high degree of skill, the third line that we will bring in probably won't ramp up quite as fast as the second line did.

Okay. And last question from me on the leasing side of the equation, your Rail lease rates are up what year-over-year, and what would you be projecting for 2006? Thank you.

Steve, do you want to address that?

Well, Rail lease rates, on our entire lease fleet are increasing in the high-single digits year-over-year. We expect those to continue to increase with the lack of available existing railcars in the marketplace. We're seeing substantial increases on renewals each quarter on those cars, that are expiring and then renewed with existing customers.

We will move next to [Jeff Sidikaro] with Merrill Lynch.

Good morning. If we just switch over back to the Barge side, it sounded like the backlog had ramped up to about 335 million at the end of this quarter. I believe you mentioned that those bookings are now into 2007. Is that correct?

Yes, our production lines, some of our production lines are taking orders into 2007.

Okay. But --

We have multiple facilities actually it's kind of like the same thing we had with the railcar, is you have different lines extend into different levels.

Just to clarify, the Ingram contract is not in that backlog, whatsoever?

Yes, the Ingram barges don't start until 2007. And there is a time period in 2006, where they firm up the quantity of the orders that they have, and at the time period when they firm up the quantity of orders that they will take in 2007, then those orders would go into our backlog.

And that's the same kind of pattern that we will have to do year-in and year-out. Rather than us speculate on how many orders. That contract had a minimum, kind of a maximum, and so there is a range in there, of where they will select, depending on what their needs are.

Once that Ingram order starts to ramp up, I mean when you talked about capacity being added in some of your lines, is that needed for the Ingram order, or are you working with the same footprint to accommodate that order?

Well, we're doing things today that are capital improvements that will enable us, as we finish out this year, and go into next year, that will enable us to increase our production in that particular area.

And we're doing the same thing in the Wind Tower. It is kind of a similar type mode, ramping up to our current production capabilities, and then putting some things in place, that will enable us to continue to increase as we finish 2006, and we move into 2007. Both of these markets are strong enough to accommodate additional capacity increases.

So do you see demand for more capacity, at least on the barge side, above and beyond the Ingram orders, and what you have a backlog now?

Yes. Yes, the barge fleet and the rail fleet, it is something if you go back to conference calls a year and a half to two years ago, I was continuously giving statistics of the age of the fleet, and the fact that the replacement demand was out in front of us, and that we felt fairly confident that these businesses would recover, and that they wouldn't really recover as a spike, due to just the economic factors. We felt that the overall replacement requirements in this industry was such, that the demand would plateau on an ongoing basis. And in the barge business, and the rail business, we're seeing evidence of that now taking shape.

Great. Just one last question. When you look on the barge side, the operating margin, could you remind me, what was the historical peak, is it roughly 12% or so, and is there anything structurally from stopping you from reaching that again?

Ask that question a little bit more. I didn't understand it.

Just on the barge side, what was the historical peak operating margin that you have reached in the past? Was it about 12%?

I don't know. I don't have it off the top of my head. I think it was even higher digits than that. I think it was like mid-teens, but that is just an off the top of my head. Sometimes I lose those figures.

Great. Thank you.

It appears that we have no further questions at this time.

All right. Thank you, Tasha. 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, March 9. The access number is 402-220-0116. Also, this replay will be available on our Website, located at www.TRIN.net.

We look forward to visiting you with again on our next conference call. Thank you for joining us this morning.

Thank you. This concludes today's teleconference. You may now disconnect your lines. And have a great day.