Trinity Industries Inc (TRN) 2011 Q3 法說會逐字稿

Good day, and welcome to today's Trinity Industries third quarter results conference call. Currently all lines are in a listen-only mode. Later there will be an opportunity to ask questions during the question and answer session. (Operator Instructions) Please be advised today's conference is being recorded.

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 the certain of the business issues and risks. A change in any of which can cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

It is now my pleasure to turn the conference over to Ms. Gail Peck, Trinity Security Incorporated's Treasurer. Ms. Peck, you may begin.

Thank you Aaron. Good morning everyone, welcome to Trinity Industries third quarter 2011 results conference call. I am Gail Peck, Treasurer of Trinity, thank you for joining us today. Following the introduction you will hear from Tim Wallace, our Chairman, Chief Executive Officer and President. After Tim our business group leaders will provide overviews of the businesses within their respective groups. Our speakers are, Steven Menzies, Senior Vice President and Group President of the Rail and Rail Car leasing groups; Antonio Carillo, Senior Vice President and Group President of the Energy Equipment Group; and Bill McWhirter, Senior Vice President and Group Vice President of the construction products in Inland Barge Groups. Following their comments James Perry, our Senior Vice President and Chief Financial Officer will provide the financial summary and guidance. We will then move to the Q&A session. Mary Henderson our Vice President and Chief Accounting Officer is also in the room with us today.

I will now turn the call over to Tim Wallace for his comments.

Thank you, Gail. And, good morning everyone. Our businesses are continuing to experience a variety of scenarios. I'm pleased with their accomplishments. Demand for rail cars in North America remain consistent during the third quarter. Orders for rail cars in our rail group once again exceeded deliveries, resulting in backlog growth for the seventh consecutive quarter. Our rail car manufacturing businesses are beginning to achieve operating leverage as they continue to ramp-up production. We expect the performance to improve during the fourth quarter. Our rail car leasing business is obtaining better lease rates and extending terms, while responding to favorable opportunities to sell rail cars from the lease fleet, in to the secondary market.

Our barge group is also experiencing consistent demand. The order backlog for the group increased 14%, during the third quarter. Our barge facility in Missouri that was damaged by severe flooding in May has fully recovered. I'm very please by the way our personnel responded to the many challenges associated with the flood. Our construction products businesses are performing well in a challenging market environment. Demand for concrete and aggregates in the markets our businesses serve, have been affected by the overall slowdown in the construction industry. Demand for highway products in the US is heavily influenced by federal highway funding. The outlook for this market remains uncertain as our political leaders continue to work through federal highway funding legislation.

The international demand for our highway products has been improving, our construction products businesses are prepared to respond as demand shifts. Our energy equipment group reported a loss during the third quarter. The loss was primarily due to issues that our wind tower business experienced, as it transitioned from producing 80-meter wind towers to manufacturing 100-meter wind towers. The taller towers are substantially heavier and more complex to manufacture than the previous models. Our wind tower manufacturing specialists are in the latter stages of resolving manufacturing transition issues associated with the new wind towers. We expect the performance of our wind towers business to begin to show improvement during the fourth quarter.

It is very difficult to predict the details pertaining to improvements, when we have manufacturing facilities transitioning through complicated new product changeovers. Our wind tower backlog was proximately $930 million, at the end of the third quarter. The backlog for our wind towers business is comprised primarily of contracts without provisions for customers to substitute the larger wind towers. Executives in our wind tower business are planning to visit with customers about developing acceptable contract terms, for substituting new tower designs. From a long-term perspective we believe our short-term investment to enhance our manufacturing flexibility in wind towers, will improve our market leadership positioning. We want our wind towers business to remain flexible enough to shift when our customers needs change.

From an overall Company point of view, I'm pleased with our accomplishments. As we begin our budgeting process for 2012 we have a positive outlook in most of our businesses. Our overall performance and strength of our market leadership positions reflects the talents and hard work of our employees, and our commitment to operational excellence. We are fortunate to have highly seasoned group of employees who are extremely capable.

I will now turn it over to Steven Menzies for his comments.

Thank you, Tim. Good morning. Third quarter operating results for the rail group and leasing group reflect increased rail car production and improved operating leverage, amid of rail car demand. Our rail group posted a 17% increase in operating profit while shipping approximately 16% more new rail cars during the third quarter compared to the second quarter of 2011. When compared to the third quarter of 2010, our rail group posted an operating profit increase of greater than 450%, and an increase in shipments of more than 216%. Our rail car order backlog increased for the seventh consecutive quarter.

Our leasing group experienced a 21% increase in operating profit, compared to the third quarter of 2010, due to higher fleet utility says, lease fleet additions, higher rental rates and profit from lease portfolio sales. Lease rates or renewal trends continue to strengthen as the number of idle rail cars in North America declines and rail car loadings increase. Industry demand for new rail cars during the third quarter was generally consistent with new rail car orders during the last 2 quarters. Current demand is driven by orders for rail cars transport crude oil from shale and tar sands fields, small covered hoppers for sand use and fracking operations, and large covered hoppers for minerals and agricultural products. We believe demand for rail transportation to support crude oil transport and gas fracking, will generate additional new rail car orders. However, the transportation and logistics infrastructure to support shale and tar sands crude oil is still developing. Thus far rail has played an important role.

These energy market developments currently provide new growth opportunities for the North American Rail Industry and rail car fleet. In addition, orders for inner-modal rail cars were placed during the quarter, as shifts in equipment preferences for domestic containers has caused a shortage of 53-foot rail cars. Demand for coal carrying rail cars is an equilibrium with the existing coal car fleet. New coal car orders during the quarter were for replacement of older coal cars operating the Eastern service. During the third quarter, the North American rail car Manufacturing Industry received orders to build 20,100 new rail cars while delivering approximately 12,500 rail cars.

Industry backlog now stands at more than 65,000 rail cars. Trinity Rail received orders for approximately 4,250 new rail cars during the third quarter. This brings year-to-date delivery -- I'm sorry -- our third quarter orders were primarily for tank and covered hopper rail cars, and came from industry shippers -- industrial shippers, and third party leasing companies. Trinity Industries rail car production backlog was approximately 27,885 rail cars at the end of the third quarter up 2% from the end of the second quarter. Approximately 18% of the units in our production backlog are for shippers of our leasing business.

We were successful at securing orders during the third quarter that extended production plants well into 2012. We continue to focus on orderers that optimize production at our facilities currently in operation, minimize line changeovers and reflect favorable pricing levels. Our third quarter orders should position us to achieve increased operating leverage. We delivered approximately 3,600 rail cars during the third quarter compared to 2,240, and 3,115 in the first and second quarters respectively. We are still in the ramp up phase of our production plan. And it is difficult to precisely determine our output and productivity until we stabilize our production levels. The steep slope of our production ramp up during the last 4 quarters has been challenging. Our operations team has done a fine job recruiting, hiring, and training a new work force. We believe we are now positioned to realize solid improvement in our operating leverage as our labor force becomes more experienced and productive.

For the year 2011, we are projecting delivery of between 13,600 and 14,000 new rail cars. As a point of comparison we delivered 4,750 rail cars in 2010, slightly more than 9,100 rail cars in 2009. We believe our production capacity is well positioned for current rail car demand, but we will be flexible and prepared to respond to further sustainable increases in demand. We added 1,100 new rail cars to our leased portfolio during the third quarter bringing wholly owned lease fleet to 54,445 rail cars, a 5.4% increase compared to third quarter 2010. Our lease fleet utilization at the end of the third quarter 2011 was 99.4%. Our average remaining lease term remained at 3.5 years. The average age of rail cars in the fleet was 6.4 years.

The [Triple E] fleet totals 14,600 rail cars operating at 99.9% utilization. As a reminder, Trinity owns 57% of Trip and manages the portfolio. As I mentioned earlier, lease renewal trends are favorable. A high percentage of leasees are renewing their contracts, which result in lowering our remarketing expenses and minimizing out of service time. Renewal lease rates are also showing steady increases. These rates on new rail cars have risen to attractive levels, we expect this trend to continue while overall rail car supply is at an equilibrium and new rail car production backlogs are extended. We have seen strong secondary market activity for the purchase and sale of existing lease rail cars during the last few quarters. Increased availability of capital is supporting the financing of these portfolio purchases.

Lease portfolio sales and secondary market activity are important tools that our rail car leasing company uses, to manage portfolio diversification and to capitalize on attractive portfolio trading opportunities. The size of our leasing foot print, which totals approximately [70,000] rail cars, positions us to more actively participate in the secondary market. During the third quarter we sold a small number of lease rail cars from our portfolio. We expect to increase our lease portfolio sales during the next few quarters assuming market conditions continue to support an active and deep market of buyers.

In summary, current rail car market conditions remain favorable for improved lease fleet financial returns and lease portfolio sales. We are entering the latter phase of what has been a steep ramp-up of rail car production. Our operations team is highly focused on maximizing our operating leverage, and we are well positioned to achieve desired production efficiencies. I will now turn it over to Antonio.

Thank you Steve. And good morning. Energy equipment group revenues for the third quarter of 2011 remained relatively flat as compared with the same quarter of last year. However, as I mentioned during the second quarter call, learning curve costs associated with producing larger wind towers negatively impacted our operating profit during the quarter. The competitiveness of the power generation market is causing our wind tower customers to focus on developing new wind turbine designs, that are more efficient and customized to the geographic location of each wind farm. Certain wind farms are in locations where taller wind towers can reach altitudes with better wind patterns. Other farms may require heavier wind towers to support the installation of larger turbines, or longer blades.

Until earlier this year, our plans have been manufacturing primarily towers with heights of about 80-meters. During the Spring and Summer we began conditioning some of our facilities to manufacture larger 100-meter towers. These towers are the first generation of this particular model. Despite only 25% taller, these towers contain approximately twice as much steel and require significantly more welding. The number of welds and the complexity associated with applying them are the primary elements of the learning-curve impacting our production consistency and our costs at this time.

As a leading provider of winds towers the ability to flex our production lines based on product demand is a key priority for us. Our team is working on enhancing our manufacturing platform, so that we can efficiently transition our production lines between wind tower models. As an example, some of our facilities that are currently building 100-meter towers, are expected to shift back to manufacturing 80-meter towers during 2012. We're developing a better understanding of the complexities associated with manufacturing larger towers and are learning more on an on-going basis. We plan to work with customers that have orders backlog to develop acceptable contract terms and pricing that will allow them the flexibility to substitute new tower designs. We do not intend to modify the terms pertaining for our customers overall contractual commitments on towers.

I will turn it over to Bill for his comments.

Thank you Antonio. And good morning everyone. Our construction product segment continued to perform well during the Summer season. The segment produced an operating profit of $17.8 million for the quarter compared to $20.3 million during the same quarter a year ago. Last year's higher third quarter profits included a one time gain of $3.8 million on divestiture of our asphalt business and a ready-mix plant in Louisiana. When this one-time gain is eliminated, earnings improved quarter-over-quarter by approximately 8%. In early April of this year, we completed asset swap that enhanced aggregate holdings. On our last quarter's earnings call we discussed 2 recent acquisitions, one in highway products and one in galvanising. These acquisitions have now been successfully integrated into our operations. During the third quarter we acquired another small highway products business. Combined, these 3 acquisitions will add approximately $40 million per year in revenue. All of our recent acquisitions, divestitures and asset swaps are part of a strategy to grow and reposition the construction products segment.

Moving to our barge segment. I'm excited to say that we have recovered from the flooding of our plant in Missouri. We are currently running at 100% of planned production. Our people have done a great job getting us back to this point in a relatively short period of time. Despite the effects of the flood, we recorded operating profits of $26 million, for the third quarter. Insurance proceeds accounted for $3.1 million of those profits. Barge movements of petroleum products, chemicals, and coal continues to be strong. During the quarter, we signed $214 million in new orders. Our backlog has grown to $564 million at quarter end, which is $49 million higher than at this time last year. Overall, I am pleased with the performance of both our barge and construction product segments. Both of which play significant roles in Trinity's diversification strategy. At this time, I will turn the presentation over to James.

Thank you, Bill. Good morning everyone. My comments relate primarily to the third quarter of 2011. We will file our form 10-Q later today. For the third quarter of 2011, Trinity reported earnings of $0.40 per common diluted share. This compares to $0.37 per common diluted share in the third quarter of 2010. Included in the results for both periods, are certain nonrecurring items which make year-over-year comparisons difficult. I will provide highlights of the items during my remarks.

Revenues for the third quarter of 2011, increased to $797 million, compared to $540 million, in the same quarter last year. Resulting from a higher level of rail car and tank barge deliveries along with growth in our rail car leasing operations. And increased level of rail car sales from the leasing portfolio. Trinity's EBITDA during the third quarter increased to $150 million, from $139 million in the same quarter of 2010. A reconciliation of EBITDA was provided yesterday in our press release. The rail group reported revenues of $320.9 million, 145% increase over the same quarter in 2010, on the strength of 3,605 rail car deliveries, compared to 1,140 a year ago. This reflects strong growth in demand, during the last year, and Trinity Rails ability to successfully meet that demand. The rail group's operating profit for the quarter increased to $18.2 million, compared to $3.3 million a year ago, due to higher volume and increased operating leverage.

During the third quarter the leasing group reported revenues of $153.1 million, and an operating profit of $64.2 million. Including $29.3 million of rail car sales from the leasing portfolio, that generated $6.5 million of operating profit or $0.05 per share. This compares to revenues of $122.1 million, and an operating profit of $52.9 million last year. rail car sales from the leasing portfolio in the third quarter of 2010, totaled $7.2 million, with an operating profit of $2.3 million or $0.02 per share. As Steve commented selling rail cars from the leasing portfolio is a regular activity that has a number of benefits. Selling rail cars from the portfolio provides our leasing business with the greater flexibility to meet the needs of customers who want to own, as well as lease rail cars. It can also help diversify portfolio composition, maximize returns, and maintain relatively low average age for the rail cars within the portfolio. We expect that our leasing business will continue to sell rail cars from this portfolio, when favorable opportunities are available.

Our Inland Barge Group had another good quarter, reporting orders of $214 million while managing through the restoration of Missouri facility, which was damaged by flood waters earlier this year. Revenues for the Inland Barge Group totaled $143.2 million, with operating profit of $26 million, in the third quarter of 2011. During the third quarter of 2010, our Inland Barge Group was recovering from a flood this time at our Tennessee facility. For the third quarter 2010, the Group reported revenues of $98.9 million, and an operating profit of $22.4 million, which included a gain on the disposition of flood damaged property plant and equipment. Our Inland Barge team done an outstanding job during the past 2 years meeting high levels of industry demands for barges, while simultaneously dealing with 2 destructive floods.

I mentioned earlier, that certain nonrecurring items effected results making year-over-year comparisons difficult. Flood related insurance claim activity is one of the more significant items. During the third quarter 2011, we finalized the settlement of our insurance claim from last year's flood, at our Tennessee barge facility. This settlement resulted in the recognition of $3.1 million of pretax income during the third quarter. We did not record any insurance gains or losses in the third quarter of 2011 from the flood at or Missouri facility. In addition, third quarter 2010 results included $9.7 million, of net insurance claim activity from the Tennessee flood. Which included $10.2 million gain on the disposition of flood damaged property plant and equipment.

The Construction products group recorded third quarter revenues of $164.8 million and an operation profit of $17.8 million. This compares to revenues of $160.4 million, and an operating profit of $20.3 million in the third quarter last year. Third quarter result for this group in 2010, included a nonrecurring pretax gain at $3.8 million, resulting from the divestiture of it's asphalt business. This group has continued to perform well in a difficult construction environment. The group has made significant progress realigning its portfolio, through a series of strategic acquisitions in the highway product space. And a repositioning of assets in the concrete and aggregates businesses, to better meet the demands of it's customers.

Energy equipment group incurred operating loss of $1.9 million in the third quarter, on revenues of $111.6 million. This compares to revenues of $106.6 million, and an operating profit of $6 million last year. The loss resulted from production inefficiencies in our wind towers business, as it transitioned from manufacturing 80-meter towers to a new line of 100-meter towers. As we mentioned in our guidance on last quarter's earnings conference call, we incurred a one time charge from the Trip refinancing during the third quarter. This charge reduced pretax earnings by $2.4 million or $0.02 per share. The effective tax rate for the third quarter of 2011 was 40%. Compared to an effective tax rate of 32.5% for the third quarter of 2010. The 40% tax rate in the third quarter 2011, reflects the increase in our business and investments in certain jurisdictions with higher tax rates. The lower tax rate in the third quarter of 2010 was primarily due to a favorable settlement of audits and the refund of state taxes in the third quarter of 2010.

As a recap, when you take in to account the nonrecurring items that I have discussed in comments today, this year's third quarter results from our core operations are substantial improvement over the same period last year. At September 30, our balance of unrestricted cash totaled $273 million. When combined with available capacity under our corporate revolver and Trinity's leasing warehouse facility, we had more than $800 million of available liquidity at the end of the third quarter. We were pleased to announce last week, the renewal of our $425 million unsecured corporate revolver through October 2016. This transaction reflects the continued support of our banking partners and provides was the liquidity needed to pursue growth opportunities.

I will now discuss our forward-looking guidance. For the fourth quarter of 2011, we expect earnings per common diluted share for the Company to be between $0.38 and $0.43. This results in earnings per common dilute share of between $1.45 and $1.50 for the full-year 2011. We expect our fourth quarter tax rate to be in line with year-to-date rate of 39.6%. We anticipate that our rail group will report revenues of between $420 million and $440 million, during the fourth quarter. With an operating margin of between 6% and 8%. We expect our rail car manufacturing companies to deliver rail cars to our leasing company, that will result in an elimination of between $75 million and $85 million, in consolidated revenues. And between $0.05 and $0.06 per share of profit. For the full-year, we expect deliveries of rail cars to leasing portfolio with a value of approximately $330 million to $340 million.

Inland Barge revenues are expected to be between $135 million and $145 million in the fourth quarter. With an operating margin in the range of 13% to 15%. The fourth quarter margin guidance assumes full recovery from the most recent flood. And, reflects the mix and pricing of the barges that will be delivered in the quarter. In the energy equipment group we can continue deal with the transition issues associated with building larger wind towers. We are making progress in this area, and expect that our results will begin to show improvement. However, we are unable to provide detailed guidance until we have a higher level of confidence in the timing of these improvements.

Our results for the fourth quarter will depend on a number of factors including, the level of operating leverage we achieve as our rail businesses ramp-up production in response to increased demand. The impact of product mix changes on winds tower's business, additional perspective sales of rail cars from leasing portfolio, and the impact of weather conditions on construction products business. Our guidance does not incorporate any potential impact on earnings resulting from the ongoing insurance settlement related to this year's flood in Missouri.

Our operator will now prepare us for the question-and-answer session.

Certainly.(Operator Instructions) We will pause for a moment to allow questions to queue. Our first question comes from the site of Allison Poliniak with Wells Fargo. Please go ahead.

Hello, good morning.

Good morning.

On the rail side, last quarter you guided between $360 million and $380 million in revenue and we came in a little bit below that, can you address what happened with that on this quarter with that?

Steve, you want to take that?

Yes sure. Good morning Allison, Steven Menzies, our guidance miss on rail revenues, was due to slower than anticipated productivity increases in our manufacturing. I would say we are not constrained by parts and components at this point. And, we have had such a steep ramp up in our labor force and productivity, that it is difficult to precisely determine exactly what our deliveries has been. And the challenge has been a uphill battle for us, and we continue to make progress to get to where we want to get to for the balance of the year.

Okay. In that note, in terms of new lines or facilities, should we be aware of new start ups in Q4 at this point?

Not at this time.

Okay. Thank you.

We will now go to the site of Steve Barger with KeyBanc capital.

Hello. Good morning.

Good morning.

I'm just trying to understand the cadence of incremental margin expansion in the rail group. Specifically production sequentially increased each quarter, your guidance suggests a pretty -- another healthy jump in 4Q, if we look at incremental margins they declined sequentially from 1Q to the current quarter. So just any further color on why those incremental have lagged? And do you think 3Q is trough for that metric?

Steve?

Yes. Stephen Menzies. Again, we've seen some improvement during the third quarter, not to the level that we would have liked to have seen. We continue to see more improvement here as we start the fourth quarter. We expect to see improved operating leverage and improved margins during the fourth quarter. But again, the steep ramp-up is a significant challenge. And doesn't go as smoothly as we would like sometimes.

Is it more of a function of pricing in the cars produced or labor inefficiency that coming from hiring people back? Just trying to get an idea of why that has been at that level.

I think Steve, the issues you are citing as far as margin expansion, is largely related to gaining efficiencies with the new labor force. We've obviously hired a lot of people to achieve the production ramp up we would like to achieve. I should point out the that, obviously cars were producing and delivering now were cars that were priced 6, 9, 12 months ago when we were the first cars in to the backlog. So, we think pricing has improved in our backlog, and we will see both improved operating leverage in the results of those better priced cars later in our production.

So, the cars going in production have better pricing than those you put out in 2Q and 3Q.

I think, generally that is true, yes.

And are you fully staffed to where you need to be to be able to put out -- if we just kind of take the mid point of your implied guidance to 4,800 cars in 4Q? And are you there right now? And are you seeing improvement in labor efficiency?

I'm pleased with the progress we've made on our hiring and in our productivity in this month so far. And I'm optimistic we will achieve the guidance that we've given you for production.

Okay. When I look at 28,000 cars in backlog, can you tell me how many are scheduled for 2012 delivery?

No. We haven't broken that out thus far, Steven. And --

Okay. I will get back in line, thanks.

And our next question comes from the site of Tom Albrecht with BB&T, please go ahead.

Hey, everyone, good morning. I wanted to get some clarification on the language that you used to describe the -- you've got contracts without provision to substitute towers from 80-meters to 100-meter et cetera, I guess a lot of little questions. What exactly does that mean? How late can specifications be changed? Does pricing change with that? There is a lot that I can think about there that may be right or wrong in that phenomena.

James?

Sure, Tom. This is James, and good morning. The comments we made refer the towers we have been building were not part of the original contracts we had with the customers. The design has been changed, that's been incremental to the backlog. They came in as orders and came out as shipments to the towers we delivered in the third quarter. We are having conversations with our customers about how to look at those contracts and potentially allow substitution that's going to come with conversations around terms and pricing and those types of things. That's not really a matter of how late they can make a change in those kinds of things. Again, the towers we are building now are not part of those agreements. And so it is an on-going conversation as we have been taking the orders for the newer towers, they have been individual conversations. And we will revisit with our customers to longer term contracts in the weeks and quarters ahead.

I guess what I get confused by is if I'm a customer, I'm not really expecting that I'm going get a bigger wind tower for the same price. So, it seems to me pricing would be a given that, that's a different product, so it's a different price. So, can you -- what else gets hung up there when you have these discussions?

Well you know, and clearly as you say, as I mentioned, these are individual conversations, Tom. So, when we talk about pricing it's not going to be related to the original supply agreement that we had when we were producing the 80-meter towers. So, we are having the conversations around the terms and conditions that surround each order. So clearly, to your point you are not looking at a larger tower for the same price as the smaller tower. So, these sets of orders that we're taking now and producing from the third quarter and going forward have their own sets of pricing. As we talked about, we are going through a learning curve and getting a better understanding for the complexities around manufacturing these towers. And that goes into our costing and pricing as we move forward.

So, is part of it -- understanding your own cost and your own productivity, and being able to best price it given that's a relatively new producing for you?

Yes, Tom this is Tim. You are exactly right. This was an investment, we knew the larger towers were on the horizon, we wanted to have the flexibility to shift our production lines. As Antonio said in his comments. And we had to have an opportunity to gain some experience and develop some data, so we could negotiate the terms on the pricing. We didn't want to negotiate terms on pricing prematurely, without having an idea of what the cost information was.

Okay. And then, lastly, and then I will get back in to queue. To what extent could such issues exist in the railcar backlog? I mean if there is changes in -- I guess there really wouldn't be changes the terms but it hard for me to envision it would be the same risk. In light of this experience I can't help but wonder if it doesn't exist.

No. This is something totally unique. These 100-meter towers are something new to the industry. They are brand new designs, they are designs that come out of the turbine manufacturers. And we build to their designs, where rail-cars that are launched are designs we go through -- and that might be new and we prototype, we gain experience on, and it's just apples and oranges. We don't see we have anything comparable in the railcar backlog.

Okay. Okay, I will get back in the queue, thank you.

Our next question comes from the site of Art Hatfield with Morgan Keegan. Please go ahead.

Good morning everyone. Just a couple of things here. First, in your guidance do you include any sales from the lease fleet in that guidance?

James?

You know, Art we have not specifically called that out. As Steve mentioned, we do plan to continue to increase our opportunities to look at those. We don't get specific there because timing is uncertain as the opportunities come along. But, we do plan to have railcar sales in the quarter and going forward.

Understanding that from an outsiders perspective, is it best for us to take the approach to model either a very modicum number, or a zero number?

You know, from a modeling standpoint, as Steve said, we had a very small amount we did in -- the third quarter. Right now we are planning on a moderate amount in the fourth quarter. But as opportunities and timing present themselves, we will look at those one other time.

I appreciate that. I know that's hard to look forward on. Follow up on the 100-meter tower situation. As you transition facilities to building the 100-meter towers, if you go back to doing 80-meters in the facilities, is that not really an issue that we need to worry about from a cost standpoint? Really, the issue here is on the front-end, your developing your capabilities to do the 100-meter towers.

Antonio, you want to take that one?

Yes. Well, as we mentioned as a leading provider of towers in North America it's very important for us to have the flexibility to go back and forth between months in an efficient manner. As we mentioned, the 100-meter towers have been the primary focus right now. But the 80-meter towers, when we go back, as I mentioned in my comments, we are planning to go back in some of our facilities in 2012. We don't expect the same issues to happen. Because we already have the experience building them.

Okay. Okay, and then finally, just on your capacity and railcar manufacturing. Steve, I understood you to say earlier that you don't plan on opening any lines in Q4. But, going forward, kinds of farther looking out a little bit further, what is your capability to do so, if demand continues to increase in railcar?

Yes. Art, Steve Menzies responding now. I think one of the strengths we have is the flexibility we have in our facilities. And be able to respond to changes in the marketplace. During the downturn we made significant improvements in our manufacturing base, that gave us potential capacity and efficiencies in our production footprint, that we didn't have previously. We do have the ability to transition some of our other existing facilities, that maybe make other products within Trinity. To be able support our railcar business if we need to ramp-up further to meet additional demands. So, I'm comfortable that within the network of Trinity facilities and with the changes that we've made in our existing rail facilities, that we have the capacity to meet increased demand. Should we begin to see that going in to the 2012.

Just a quick follow up to that, do you have facilities that are idled? And if so, clearly you could ramp those up, but is it possible those could be closed permanently going forward?

Without getting in to specific facilities, I guess the answer is yes or no. But, we do have idle facilities today. And we do have facilities that may not come back on stream as well. So, again -- the important thing is our production foot print gives us the capacity to respond to the market demand.

And finally, and then I will be done. It just occurred to me, is there much cash or cost drag in maintaining any idle facilities -- I guess in any of the businesses.

James?

Yes, Art this is James. As Steve mentioned, we do have idle facilities in certain businesses and we're able to transition those for other products at times, and we're certainly doing that right now. The drag, as you mentioned, on earnings or cash is rather minimal, there are certainly some overhead costs you have with utilities and maintaining facilities. It's not significant impact on our earnings.

Excellent. That's very helpful. Thanks for your time.

Thank you, Art.

We will now go to the site of Sal Vitale with Sterne, Agee. Please, go ahead.

Good morning, all.

Good morning Sal.

Just have a quick question. Just looking at your new orders and -- based on the rail revenue numbers you provided, without having to break down the of components, just -- trying to roughly estimate what the ASP was in the new orders. I get to a number of $100,000 on the new orders received, which is a significant increase year-over-year. How do we think about that going forward? It seems that one of the reasons that your market share of the new orders was a little lower this quarter than say, last couple of quarters was because I guess you have been focusing on certain car-types. How do we think about that, I guess two questions -- how do we think about that market hair of the new orders going forward over the next couple of quarters? And do you expect to see the same solid pricing on your new orders over the next few quarters?

Yes. Sal this is Steve Menzies, I will respond to the market share question, and I think James will take the rest of it. I think as we've said time and time again, we don't look at our progress on quarter-by-quarter market share basis. We really look at market share more as an aggregate over a period of time. And then we do spend more analysis looking at specific car types. The orders we received thus this far this year, really have been in our sweet spot from a product mix stand point. And to the extent we've been able to secure additional orders to extend those production lines, we will continue to do that. We are seeing very firm pricing in the market place, and increasing pricing on new cars and the lease market. Which at this stage of recovery, should be moving close correlation with one another. So, again we think the order I trend is good, and we think the order trend is consistent with the cars that we have in our production plans.

Sal, this is James in terms of pricing, when you see the 10-Q you will see the breakout of revenues that came from parts and components versus that came from our manufacturing lines. The $100,000 number you mentioned, that's certainly quite a bit high. You get more than average of $75,000, $80,000, $85,000 over the last few quarters, you will see that change as mix changes quarter-to-quarter both on deliveries and orders. And we can certainly help you with that later today as you see the 10-Q work through the math.

Okay. That's helpful. Thank you. And then just switching over to the I guess the new deliveries guidance you provided. I noticed that it's about 200 cars lower than the original guidance. I guess is that -- is the view there that -- I guess one, could it be cancellations? Which I don't think it is. Or is it basically, some of the cars that you had originally planned to produce in 2011 now spill over in to the first quarter of 2012.

It's really -- this is Steve again, Sal. It's really the latter. We expect the cars to spill over in to the first quarter if we still don't get them yet here the fourth quarter. We've had no cancellations of orders with respect to our forecast for deliveries in the fourth quarter.

Okay. That's helpful, thank you.

And we'll now go to the site of Tom Albrecht with BB&T for follow-up question.

Okay. Just a couple of more questions on the towers, and that. How many towers do you typically make in a quarter, I know in the queue the revenues have been running around $65 million a quarter. And then, just kind of being extra anal here, how far in advance can a customer cancel a wind tower order?

James, go ahead.

Sure, Tom, this is James. And again as you said we breakout the revenues in the 10-Q. They did come down a little bit in the third quarter. They were around $53 million in the third quarter. That came down a bit again, as we were ramping up for the towers, as you would expect we had lower productivity and through-put. So that did come down. We don't get in to how many towers the volume of course, and certainly as we are moving from building 80-meter towers before to 100-meter now. The comparison wouldn't make much sense anyway. In terms of cancellations and those kinds of things, when we take an order in the backlog, as you recall, there is not cancellation provisions. As we take an order we expect to produce tower. Certainly right now, as we mentioned, we are working off of new orders and purchase orders rather than towers from the supply agreement, so we are able to plan that productivity consistently over the next couple of quarters.

Okay. Then, I was trying to back in to a number here. But -- bare with me -- so you know your guidance assumes that you are going to be able to deliver close to 5,000 rail-cars, in the fourth quarter. Which the only reason I double checked that, is because you had, had such a good record in recent quarters of being able to deliver at or above your guidance. This is the first time we had a pro forma shortfall in the third quarter. You're rock solid that give or take 100 or 200 units you are going to be around 5,000?

Tom, this is still James. And when you look at that, your math is right. It's a little shy of 5,000 as the implied fourth quarter number there. And again, we continue to go through a pretty steep ramp-up from building 1,100 a year ago to 3,600 year-over-year in the third quarter. So, as you mentioned we were little shy of our delivery expectations on the revenue side in the third quarter. But, do expect to meet the expectations for the annual basis on the 13,600 to 14,000.

Okay. The math I'm showing of the backlog that you've got 27,885, it looks like about 20,385 is due in 2012 or later. I'm going to assume, at least -- well probably a few of those are still beyond that with the GAT-X. It looks like right now thinking about no more orders your production is probably at least 15,000 for 2012. And of course your order book is not closed for business yet. Is that in the ballpark thought process?

Tom, Steve Menzies. We haven't projected 2012 deliveries, or any quarter of 2012 deliveries. As you pointed out we are highly focused on achieving projections we've given for the balance of this year. And we'll see how orders continue to flow in, and how our production ramp up progresses, and certainly give you some insight next time we talk about 2012.

Would you be disappointed if you didn't produce more?

I think I've given you the answer.

I know, you can't fault me for trying. Alright, thank you.

And we will now return to the site of Steve Barger with KeyBanc capital. Please go ahead.

Yes just -- thanks for taking my follow up. Steve, you talked about how your manufacturing footprint became flexible in the downturn, but did you say where you are capitalized to on a unit basis plus or minus?

Well, I don't know that we would look at our plants as far as what's our capacity today. Certainly we have the ability to increase production at our current facilities, with additional staffing. Right now we think we've got the right staffing for the production plan that we have. And again, obviously mix has a lot to do with the productivity at our facilities and line changeovers. And right now we've worked very, very hard to minimize those line changeovers.

Right. I guess I'm trying to understand -- I mean you produced 3,600 this quarter, presumably with sub-optimal conditions. You're -- we are looking at 4,800 or 5,000 next quarter. Is that the limit? Or can you go to 6,000 or 7,000 based on your existing production facilities. And the reason I ask -- if you need to bring capacity on line, should we expect the same kinds of learning curve issues that you are going through right now? Or is marginal capacity easier to bring on line?

I think this was only supposed to be an hour long conference call. We could spend a long time answering that question for you, Steve.

I'll just take the unit number then.

Yes, I know. And you keep working me for it. We are highly focused on what we projected in the fourth quarter.

Alright, thanks.

And we'll now go to the site of Sal Vitale with Sterne, Agee. Please, go ahead.

Okay. Thank you for taking the follow-up question. Just returning to some of your prepared statements, one of the comments you made. You said that the orders you received in three-q were primarily for tanks and covered hoppers. So, should we expect -- and then you also mentioned that you are focusing on the car types that minimize changeovers and have attractive pricing. So, should we assume based on that, that coal cars and inter-model cars are two of the types that don't fit those characteristics in which pricing is not attractive? And, should I further assume that you will not be pursuing those types -- of business in the next few quarters?

Well, I think the point we've tried to make, Sal, is that we want to maintain continuous production run of certain car types. And we have seen through demand we are able to do that with tank cars and covered hopper cars. To the extent that we see demand significant enough to establish production and to have a continuous long-term run of cars, we will look to participate in those markets. We haven't seen that as being the case in coal or in boxcars, both of which were cars ordered -- during the third quarter. We did not see acceptable praising levels associated with it or model cars. So, as market conditions continue to strengthen, and we see the sustainable demand for certain car types, and we see returns commensurate with the risks we take to manufacture. We will certainly enter those markets and participate fully and we have the capacity and capabilities to do that. We have not seen market conditions tell us that's the appropriate action at this time, but remain flexible. And we monitor the market continuously.

Okay. The reason I asked the question, I guess specifically on the coal side the question I often get is that Trinity is going to ramp up production of coal cars, and --provide competition with one of your primary competitors. So it sounds like, -- if I ask the question a different way, how much -- what type of increase in pricing for coal cars would you need to see from current levels for that to become attractive to you?

Good question, Sal. I don't know there is a specific answer. That's a combination of pricing and the sustainability of demand. Again, I price cars over short production runs to be able lead to successful production planning. It's combination of factors when we are looking at a number of them.

I think, Steve you commented that the coal cars were replacement rather than incremental ads. And normally the incremental ads are that sustainable type of production level that we are striving for. And, when the other markets have that, and you are able to obtain those, we got lines set up and go after that.

Exactly.

Just one follow up on that line set-up that you just mentioned, what are the costs associated with that? How prohibitive is that?

Cost associated with what?

With the line set-up.

With the line set up to produce coal cars for example.

We have the tooling and everything in place, and it's just a matter of transitioning the facility and it's kind of an opportunity cost. That says, like a portfolio manager would say do I want to pursue this particular product or that particular product. When you have markets that are as strong as they are. And a rail group is a pretty good opportunist -- group of opportunists and they go after things that they get that consistency and can create that operating leverage. Steve, and his group has done a nice job, there.

Okay. That's very helpful. Thank you.

This does concludes our question-and-answer session. I would like to turn the program back over to our presenters for additional comments.

That concludes today's conference call. A replay will be available after 1.00 Eastern -Standard time through midnight November 2, 2011. The access number is 402-220-0118. Also the replay will be available on the website located at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.