Trinity Industries Inc (TRN) 2012 Q2 法說會逐字稿

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, andincludes statements as to estimates, expectations, contingents 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. Please note this call may be recorded.

It is now my pleasure to turn the call over to Gail Peck, Vice President and Treasurer of Trinity Industries. Please go ahead.

Thank you, Victor. Good morning, everyone. Welcome to Trinity Industries' second quarter 2012 results conference call. I'm Gail Peck, Vice President and 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 Bill McWhirter, Senior Vice President and Group President of the Construction Products, Energy Equipment and Inland Barge Group; and Steve Menzies, Senior Vice President and Group President of the Rail and Railcar Leasing Group. Following their comments, James Perry, our Senior Vice President and Chief Financial Officer, will provide the financial is 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 performed well during the send quarter. We continue to see a strong demand for products to transport and store crude oil and other liquids critical to the energy industry. Our railcar and barge manufacturing businesses are aggressively pursuing demand for products that serve these industries.

The backlogs for these businesses totaled approximately $3.7 billion at the end of the quarter. The size of our rail and barge backlogs provides our business leaders production visibility deep into 2013. Our business leaders have been highly effective at working together to reposition a portion of our production capacity to pursue robust market opportunities. During the next few months we will shift more production capacity to serve the oil, gas and chemicals industries. As a result, a number of the businesses within our portfolio will benefit from this transition.

As we begin 2013, we expect our Rail Group to be in the early stages of a long production run of consistent products that serve these markets. We expect a similar situation of long production runs to continue in the area of our barge business that serves these markets. A number of our other businesses which provide internal support and manufacture products for these industries should also obtain long production runs and generate operating leverage.

Trinity's Railcar Leasing and Management Services Group performed well during the second quarter, obtaining higher lease rates and securing longer lease terms. The size and product mix of our lease fleet provides the opportunity to pursue secondary market sales when certain industry characteristics are favorable. This group will continue to pursue opportunities to capitalize on strong demand for certain types of secondary market sales of leased railcars.

I'm pleased that our Energy Equipment Group reported a profit during the second quarter. I'm confident that our team it is moving in the right direction. We will adjust our production capacity for wind towers with industry demand and shift excess capacity whenever possible to other industry products. The federal highway funding legislation that was recently implemented extends the current levels of highway funding for two more years. This should be a catalyst for our construction products businesses, which serve this industry.

Our balance sheet is in great shape, and our overall financial position is strong. The business environment appears to be shaping up nicely into 2013 for our businesses that serve the oil, gas and chemicals industries. We are well positioned to capitalize on additional opportunities for growth in a variety of industries. We have been very deliberate during the past decade to position Trinity in a way that allows us to pursue a variety of opportunities in various industries.

Our businesses are very experienced in shifting resources as demand changes, aggressively pursuing orders to establish production runs, and generating operating leverage, which leads to margin improvement during periods of consistent production levels. Our manufacturing flexibility is one of Trinity's core competencies, and we plan to utilize it as we see opportunities surface within the industries we serve.

Overall our second quarter performance reflects is the strength of our multi-industry platform, the benefits provided by our market leadership positions, our commitment to operational excellence, and the talents and hard work of our people. I will now turn it over to Bill McWhirter for his comments.

Thank you, Tim, and good morning, everyone. Our Construction Products Group produced an operating profit of $15.2 million during the second quarter of 2012.

This is a slight decline from the same quarter a year ago, which we attribute to a soft highway products market. The recent passage of much anticipated two year highway bill should improve market conditions by providing a stable environment for states to plan projects. The timing of the improved market may be a little slow in coming, but we should see better market conditions in 2013 and 2014.

Another encouraging sign for the construction market is the recent uptick in home building. Overall, I see positive signs for market growth in 2013 and 2014. We continue to see this segment as a key contributor to Trinity's multi-industry vision. As such, we will seek opportunities to grow and reshape the segment in the future.

Moving to our Energy Equipment Group. The second quarter marked a return to profitability, posting an operating profit of $4 million. In the near term I believe we he have an opportunity to continue improving profitability over the second half of the year. From a long-term planning perspective we see a significant decline in wind tower production in 2013, as the production tax credit seems likely to expire without renewal.

We are in discussions with our customer to determine the appropriate rate of production for 2013 based on the status of the PTC and overall market demand. Fortunately, Trinity's railcar business has significant demand, and we will utilize some of our excess wind tower manufacturing capacity.

And finally, I will close with our Inland Barge Group. For the second quarter our barge business had revenues of $174 million and operating profit of $36.6 million. Clearly the second quarter financial results were strong. The results achieved were primarily due to the delivery of an order of specialty barges. In addition, the general mix of standard barge types delivered during the quarter was favorable. During the quarter our sales team did a great job bringing in $203 million in new barge orders. At quarter end our barge backlog grew to $541 million.

From a market demand perspective, we have mixed conditions. The movement of petroleum and chemical products has created a robust market for tank barge. I would describe the dry cargo market as more normalized, with some downward pressure. Both the reduction in domestic coal usage and uncertain grain harvest are the primary drags on the market. Overall, I continue to be pleased with the performance of our business unit teams.

At this time I will turn the presentation over to Steve.

Thank you, Bill. Good morning. Second quarter results of the Rail Group and Leasing Group reflect improved operating leverage and solid increase in our order backlog amid steady railcar demand. Our Rail Group reported an operating profit of $53 million during the second quarter of 2012, a 32% increase compared to the first quarter and a 244% increase compared to the second quarter of 2011. The dollar value of our railcar order backlog increased over 23%.

Our Leasing Group reported a 28% increase is in operating profit when compared to the second quarter of 2011, due principally to a larger lease fleet, higher lease renewal rates, and profit from lease portfolio sales. Lease rate and lease renewal trends remain very favorable.

Industry orders for new railcars totaled approximately 16,400 and were driven primarily by orders for railcars needed to serve the oil, gas and chemical industries. During the second quarter, Trinity Rail received orders for 8,610 new railcars. Our second quarter orders primarily for tank and covered hopper railcars, and came from industrial shippers and third-party leasing companies.

Trinity Rails' order backlog 30,610 railcars at the end of the second quarter, up 12% from the end of the first quarter. The dollar value of the backlog increased to all time high of approximately about $3.2 billion, reflecting orders for higher value railcars and rising prices for certain railcars in high demand. Approximately 23% of the units in our order backlog are for customers of our leasing business.

We were successful in securing orders during the second quarter that extend current production lines for some railcar types into 2014. Also during the second quarter, in response to a shift in the mix of railcar demand, we began to execute plans to change over certain existing railcar production lines and to transition excess wind tower capacity to railcar production. Our operating flexibility was key to our success in capturing the large number of orders in the second quarter.

We believe our actions will position Trinity Rail to produce a more favorable railcar mix through you 2013 and into 2014. While we expect our Rail Group revenues to grow in the second half of 2012 due to our shift in railcar mix, we may not see the same rate of operating margin improvement we demonstrated from the first quarter to the second quarter due to costs we expect to incur related to our production transition and product line changeovers.

We delivered approximately 5,245 railcars during the second quarter, compared to the approximately 3,115 railcars we delivered in the second quarter of 2011 and 5,010 railcars in the first quarter of 2012. During the second quarter of 2012 we saw solid improvement in our operating leverage due to a more experienced labor force and the stabilization of our railcar production rate. This is evidenced by the increase in our operating margin during the second quarter while producing at consistent levels. For the year 2012 we are still projecting delivery of approximately 19,000 to 20,000 new railcars.

We added proximately 1,565 new railcars to our wholly owned lease fleet portfolio during are the second quarter, bringing our total lease fleet portfolio, including trip, to approximately 70,700 railcars, up 1.5% compared to the lease fleet portfolio at the end of the first quarter of 2012. Lease fleet utilization remained above 99% for the eighth consecutive quarter.

Lease renewal trends are very favorable, given the extended production backlog we have for certain railcar types. A high percentage of our leasees are renewing contracts, which lowers remarketing expenses and minimizes out of service time for the fleet. This has had a positive impact on leasing operating margins.

Rising railcar prices, extended production backlogs, and favorable Lees renewal trends are creating an environment that supports further increases in lease renewal rates. We expect this trend to continue while existing railcars are in tight supply and new railcar production backlogs remain extended.

The secondary market remains active for the sale of leased railcars. During the second quarter of 2012 we sold another group of lease railcars from our portfolio. We expect additional lease portfolio sales during the next few quarters, assuming conditions continue to support an active secondary market.

In summary, near term railcar market conditions remain favorable, driven in large part by demand from oil and gas production activities, chemical market expansion, and increasing automotive production. We continue to see steady order inquiries. We will enter 2013 with a strong order backlog. During the second quarter we saw meaningful improvements in our operating leverage.

As we continue through 2012, our operations team will remain focused on improving efficiencies while keeping production levels stable. I'm confident that we can successfully execute our plans to transition our production footprint to meet strong market demand to serve the oil, gas and chemical industries, and position Trinity Rail to capitalize on attractive market opportunities through 2013 and into 2014. We expect to continue to see the benefits of a strong lease pricing environment and an active secondary market supporting lease portfolio sales.

I will now turn it over to James for his remarks.

Thank you, Steve,and good morning, everyone. Bill and Steve's remarks touched on the financial results of our business groups during the second quarter. Therefore my second quarter comments will be high level, principally related to the Company's outlook for the second half of 2012.

As we reported yesterday, we had second quarter revenue growth of 45% and net income growth of 126% as compared to the same period last year. This continues a trend of significant growth as we target markets in the industries that our businesses serve. The operating leverage we have achieved represented by a Company-wide operating margin of 15.1% in the second quarter is a reflex reflection of our seasoned leadership, dedicated employees and the flexibility that Trinity has within its manufacturing footprint.

During the second quarter, we repurchased 1.7 million shares of our common stock in the open market at a cost of $41 million. We have $159 million of remaining availability under our share repurchase authorization for 2012. During the second quarter we also announced a 22% increase in our dividend to $0.11 per share. This increased dividend is payable next week to shareholders of record on July 13. These actions demonstrate our commitment to returning capital to shareholders. We will continue to evaluate future dividend and share repurchase actions on a regular basis, comparing them to other investment alternatives.

At quarter end unrestricted cash totaled $294 million. When this cash is combined with the available capacity under our corporate revolver and leasing warehouse facility, we he had $832 million of available liquidity at the end of the quarter. We are well positioned to capitalize on investment opportunities as they arise.

I will now turn to the outlook for the second half of 2012. As we mentioned in the press release yesterday, due to the imprecise timing of a number of variables we are providing second half guidance for 2012 rather than quarterly guidance.

We now expect earnings for the second half to be between $1.45 and $1.60 per share. Combined with our strong results for the first half of the year, we now expect full year 2012 earnings per common diluted share of between $2.95 and $3.10, compared to the previous full year guidance of between $2.55 and $2.70 that we provided on our earnings conference call in April. This earnings outlook compares favorably to the $1.65 of earnings per common diluted share that we reported for the full year 2011 after the $0.12 adjustment for flood related gains.

We are in the process of repositioning a portion of our production capacity to align with continuing strong demand, primarily for products serving the oil, gas and chemicals industries. This transition is currently underway in several facilities and is expected to be complete by year end. The associated costs incurred during the second half of the year for repositioning a portion of our production capacity to meet this demand are expected to be approximately $0.08 to $0.10 per share and are included in our second half guidance. Our businesses have historically performed well when experiencing long production runs is of consistent products. We are very optimistic about Trinity's position as we prepare to enter 2013.

We expect our Rail Group to deliver between 8,745 and 9,745 railcars in the second half of 2012. We expect this to result in second half revenues of between $1 billion and $1.1 billion, and an operating margin of between 9% and 11% for the group, inclusive of the previously mentioned costs associated with repositioning our production capacity.

Included in the second half earnings guidance is between $0.17 and $0.22 per common diluted share of net profit from sales of railcars from the lease fleet. At this point the secondary market remains receptive to sales from the fleet, and we will continue to seek opportunities to conduct such transactions.

The second half earnings guidance includes deliveries of railcars to the leasing company that will result in a revenue elimination of between $290 million and $310 million and net profit elimination of between $0.20 and $0.26 per share. After taking into account the proceeds from railcar sales from the lease fleet, we now expect our net leasing capital expenditures to be between $140 million and $170 million for the second half of 2012.

For the first six months of 2012 we reported approximately $0.18 per common diluted share from railcar sales from the lease fleet. For the first six months we reported revenue and net profit eliminations from railcar deliveries to our lease fleet of $255 million and $0.19 per share respectively. For the first six months of the year net leasing capital expenditures were approximately $122 million.

Inland Barge revenues expected to be between $320 million and $340 million for second half of the year, with margins of between 16% and 18%. The guidance assumes healthy margins for group and is comparable with levels we reported in the first quarter. We will continue to evaluate market conditions as we deploy capital to promote the growth of our businesses. Our current 2012 business plan includes capital expenditures of between $130 million and $150 million in our manufacturing businesses, which encompasses capital investments we are making to reposition a portion of our production capacity to meet demand.

The as a results for the second half will be influenced by multiple factors, including the amount of operating leverage that our rail and barge businesses can achieve, thecosts associated with repositioning a portion of our production capacity, the level of sales of railcars from the leasing portfolio, the amount of profit eliminations from railcar additions to our Leasing Group, and the impact of weather conditions on our construction products businesses.

I will close by reiterating that we are pleased with the Company's performance in the second quarter. As we look to the second half of 2012, we are focused on delivering solid operating results while at the same time repositioning a portion of our production capacity to respond to strong demand for products that serve the oil, gas and chemicals industries. As we enter 2013 with the strong order backlog, Trinity will be well positioned to take advantage of additional opportunities in the markets we serve. We have a seasoned team of business leaders and a balance sheet that can support investment in our business platforms for future revenue and earnings growth.

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

(Operator Instructions). We'll if first go to Allison Poliniak with Wells Fargo. Please go ahead.

Hi, good morning, guys.

Good morning.

On the production moves, remind me, were some of the wind facilities actually -- didn't they used to make tank cars? And are we starting some of those moves today, so we could see more in the Q3 versus Q4? Just trying to get a sense a little bit more there.

Okay , Steve, you want to take that one?

I guess the answer to that is yes. When we saw the railcar market decrease several years ago, we were successful in converting several of our plants to produce wind towers, and fortunately now we have the operating flexibility to go back the other way.

Great. And I guess this one goes to you as well, Steve. Just given the prevalence of the tank car orders, how are you guys viewing that market? Are there concerns that this last quarterly order could be it for a while? How are we looking at that right now?

We are continuing to see strong demand and -- in our order inquiries for those cars to serve the oil and gas and chemical industries. And I think we really see this concentration of tank car orders as a real opportunity. As a matter of fact, we don't think it could have come at a better time for us. We know the tank car product line very well, and we have competencies to produce this car type in high volume. The substantial demand that we are seeing we are well positioned for. And with the sluggish freight car market and the downturn in the wind tower industry, we are able to demonstrate our flexibility by capturing the market and making the shift.

Perfect. Thanks, guys.

Thank you. We will now take our next question from Bascome Majors with the Susquehanna Financial Group. Please go ahead.

I wanted to drill down a little more detail on the accelerating demand that we see in tank car markets across the industry. Can you give us some directional insight into how much of the recent strength is from crude by rail versus users in more traditional chemicals end markets?

This is Steve. Certainly the oil and gas market is driving a significant part of the demand. But I think it is important to recognize that we are starting to also see the ripple effect of those energy products in other chemical production as well as some dry chemical production. For instance, plastics and resins. So this I think has a longer sustainability as the ripple effects of abundant oil and gas becomes available, and we see distilled products and others expand.

And just to expand on that, there is a lot of ethylene capacity coming online. We are talking billions of dollars in investment in say the 2014, 2017 time frame. And I get that is a long way out, but the line for tank cars is pretty long at this point. I'm curious, are you having conversations about orders that far out with customers at this point?

I think our customers had to make an adjustment in some of their capital planning activities, recognizing the extended backlog on tank cars. And we are having conversations with customers about potential orders in the 2014 and 2015 time frames, yes.

All right, guys. Thanks for the time this morning.

Thank you, Bascome.

We'll now take our next question from Thom Albrecht with BB&T Capital Markets. Go ahead, please.

Good morning, everybody. Congratulations on a good quarter. I had a couple of questions. Let me just rattle them off, and you can respond. Number one, on your lease renewals, how do they compare to the GATX LPI index, which saw their renewals up about 23%?

Secondly, as I look at your backlog of a little over 30,000, it seems like 14,000 to 15,000 might be oriented towards 2013 production. Can you make some comments on that?

And thirdly, the last couple of quarters there has been a discussion by all of the railcar makers of a broadening of demand. There was (inaudible -- technical difficulties) not that discussion, and I heard the words I think you wanted to communicate on that. Certainly you mentioned a ramp up of auto production. But could you speak to the broadness? We all saw the Q2 order numbers, but is the broadness of the order book going away now for an extended period of time, or was that limited to Q2? Thank you.

That was good, Tom. Thanks. This is Steve. First of all, on lease renewals, I won't give a specific comment about GATX's index or comparative, but clearly we are seeing a very favorable lease renewal trends. Again, a high percentage of our leasees are renewing our contracts. That has a positive impact on our operating margins, with lower remarketing expenses and minimizing out of service time. This is indeed a very favorable time in lease pricing, and particularly with renewals and extended production backlogs.

As far as the breadth of the market, I mean we have talked about an expanding chemical industry, which drives demand beyond the crude oil cars or crude by rail trend that we are seeing. It also drives demand in the covered hopper cars for dry chemical products and resins. I also want to point out we are seeing strong demand in the automotive market, with projections for automotive projection by independent forecasts as many $15 million to $16 million in the 2013 and 2014 time frame.

And I guess lastly with respect to the breadth of the market, this railcar market shifts from time to time. And I think our operating flexibility allows us to be prepared for are what might be the next shift if and when that comes, and if the history bears out, we will certainly see another shift down the road again. And I think we are well positioned to take advantage of that when it happens.

Steve, how about my tea leaves description of the backlog relative to last year's production?

We are not in a position today to talk about 2013. We do that in subsequent conference calls. But clearly we are seeing demand that is pushing into 2013, and we even have orders now pushing into 2014.

Okay. Thank you very much.

We will now go to Art Hatfield with Raymond James.

Thanks. Good morning, guys. Congrats on the quarter. This is Derek Rabe in for Art.

Good morning.

Just to piggyback on some of the earlier questions. I was wondering if you could provide us with kind of a picture of how much capacity is coming back to the tank production landscape for you guys from the conversion, from the wind tower business? And then just taking a broader perspective look at it, can you just give us an idea of how many idle plants you guys still have out there that you could possibly bring online, if demand were to pick up significantly from here?

This is Tim responding to that. As far as the idle capacity and the shifting of the production and providing units and quantities that we will have in our various facilities, we don't provide that information. We remain very flexible so we can shift production and balance it with demand levels, and our people, as I said, are doing a fabulous job of going through various transitions. This isn't the first transition that we have been through in the last several years.

We have been almost in a state of constant transition of flexing our facilities. We have some facilities that go partial idle, and we have some that go idle, and then we have some that convert from one product back to another. So it is a fairly complicated matrix, but we have got some very seasoned people that support the decisions to pursue the demand levels like they are. And it is really amazing inside to watch this happen with this organization. It is a fabulous group of people that provide support.

Okay. Thanks for the color there. Just wanted to switch gears to the energy business. We saw the margins comeback to profitability,I think sooner than we expected. How sustainable are those positive margins in the next couple of quarters? And can you just talk to any headwinds that you see out there? Obviously, the wind tower business is pretty weak.

Bill, do you want to take that?

Sure, Derek. As I made note in my comments earlier, I see opportunities for improved profitability over the back half of the year, so obviously I'm optimistic. We made the significant changes in the product, and we have got a good run of product running through the facilities right now and the team is doing a great job. SoI think back half can be better than the last quarter.

Going forward the expiration of the PTC is going to create a challenge, and so as I said in my comments, we are working with our customer to come up with a production rate for 2013 that makes sense. And then to the extent that we have the idle capacity and the Rail Group has a demand for, we will make those shifts.

Okay, great. Just a couple of housekeeping items. Can you guys talk to the -- what was behind or what was the drivers behind the lower corporate expenses, and then also the gain in the other rail -- or the other net line? Was there a sell of a property there, or can you just talk about what the drivers were?

Yes, Derek, and in our 10-Q we talk about -- this is James, Derek. In our 10-Qs we talk about within those line items. All other includes a lot of things. Our logistics company. That is where we have the non-operating plants, so we have environmental, legal, non-operating shift types of things are in there, our captive insurance company is in there. So as the operations of the business grows, as they are right now with the substantial pickup in demand in production that we have had, you will see items quarter to quarter move through those lines that are kind of unique to specific quarters.

Okay. Great. Thanks for the color.

Thank you. We will now go to the line of Matt Brooklier with Longbow Research. Go ahead, please.

Thanks. Good morning. I wanted to drill down a little bit more on the expectations for railcar sales within your lease business. I heard a $0.20 to $0.22 number baked into the guidance. Is that for the second half or per quarter?

James?

All the guidance that we provided is the second half number. What we talked about in sales to the lease fleet during the second half is $0.20 to $0.26 on a profit elimination.

I'm sorry, that is the sales to the lease fleet. The gains of the lease fleet is $0.17 to $0.22. I think you said $0.20 to $0.22.

So the number is $0.17 to $0.22, and thenagain that is for the second half.

For the second half of the year, that is correct.

So it is coming down a little bit if we just divide it in half versus what you guys did in 2Q. Can you provide a little will bit more color as to why you accelerated the rate of railcar sales? Was it just very attractive price and potential return on those specific cars? And maybe talk to what to what cars were specifically sold? Any color would be helpful. Thanks.

Sure, Matt. This is James. I'll pick up. We had $0.18 in the first half of the year, and we're looking at $0.17 to $0.22 the back half of the year. So we're expecting a nice sustainable level of opportunity for us. As we talked about, as we go through quarter to quarter we see opportunities. We have now a large lease fleet, and having a lease fleet in excess of 70,000 cars gives us those opportunities to seek did I diversification, to seek the opportunity to put liquidity back in the business and reinvest in new railcars. And it's a mix of product types and car types, as we look at what we sell in the given quarter.

In terms of the opportunities ahead us, as we said, the market is still receptive to those. We continue to have discussions, and as we have inquiries for certain car types, we look at the pricing the returns that offers our business. And, again, as we look at the mix and diversification those types of transactions offer us, then that -- it's a good transaction for us to execute.

Understood. Within Energy Equipment we hear there is a transition away from production at the wind tower facilities. I think you have roughly four, if I'm correct. It sounds like some of those wind tower production facilities are already, or will be in the near term be producing railcars at this point in time. If we get into a scenario where the tax credit expires and there is very weak demand for wind towers -- hopefully it is just a temporary situation, but if this is the case, are you able to backfill and use those four facilities to produce just railcars? Or would there be something that would impede you from being able to do so?

This is Tim. When we have plants that don't have orders, we then kind of put them up for grabs, and all of our businesses are looking at them, and it depends on what the product mix might be at that time and demand levels of our various businesses. And then we have conversations pertaining to the returns on shifting the business. So there is not a standard formula, and there is not a standard plan that we go through. It is all tied to opportunistic situations of demand levels in the market.

Okay. So I guess it is on kind of a case-by-case scenario, but I'm just thinking you have really nice strong demand in the near term and likely over the next couple of years for tank cars and some of the covered hoppers and other car types. And potentially if we do get into a scenario of temporarily very weak demand for wind towers, you are able to utilize those fixed assets and get return on the fixed cost side of it. Within the Construction Group, if we look at the highway bill that was passed earlier in July, where do you see the most opportunity? Is there any way to potentially quantify the amount of that opportunity within the Construction Group? And maybe the timing if you could do so?

Matt, this is Bill. From the timing perspective, in my comments I talked about it being really more of a 2013, 2014 situation. I'm hopeful that it comes a little sooner than that, but theconstruction season is upon us, and it is late for engineers to be planning projects and have the projects on the table.

The bill itself was a nice bill. Funding was consistent with the funding in the past. Obviously it was 28 months. It did have special emphasis on highway safety products, which is a marketplace that Trinity participates in, and the budget for those products was raised. So weare hopeful the bill itself brings us good market conditions over the next couple of years.

Very good. Thank you for the time.

Thank you, Matt.

Thank you. (Operator Instructions). We will go to Sal Vitale with Sterne Agee.

Good morning, all.

Good morning.

Just a few quick questions. Maybe we could start on barge. You gave barge guidance I think that was 16% to 18% for the second half in terms of margin. And in your comments you mentioned that for the second quarter that some of the increase in the profit on the barge side was from some specialty barges. So how do we think about that in terms of that -- you did 21% margin in Q2, and that steps down -- let's call it 300 basis points or so. Is it fair to say that some or all of that 300 basis point step-down is due to the specialty barge product that you sold?

Yes, Sal, this is Bill. From the margin perspective and the 300 basis points that you are talking about, as we said, the specialty order was as big contributor to that. In addition, I cited that the general mix of barges and long production runs that we have of particular barge types were favorable to Trinity as well. So those two items is together combined for the vast majority of that improvement. So we had a strong quarter, and 16% to 18% is a nice play is to get back to in this business. And so we'll keep running down the road.

Okay, but thinking ahead beyond the second half, can we think about the number being closer to say that 20% level?

Well, James provided you the guidance of 16% to 18%, so we're not going to --

Fair enough. Okay, ifI could just switch gears over to the railcar side. If I look at the -- just starting from an industry perspective in terms of the tank car orders, maybe looking at the last five quarters or so, they have generally been in the range of -- call it 5,000 to 7,000. And then in 2Q they pretty much doubled to about 13,700, which is great. I'm just trying to get a sense for -- how many orders were there that really drove that? I mean, was it pretty broad based, or was it just based on some specific customer orders that were on the larger side? And then from your perspective in particular, can you give a sense for what percentage of the orders that you obtained?

Sal, this is Steve. I would say there is certainly some large orders in the mix. There is small orders. I mean, tank car orders range from five cars to an order and can be a 1,000 cars per order. So all points in between. I would generally describe it as being fairly broad, andI would expect that trend to continue.

Okay. And then if I could just ask one last question on the covered hopper side. That's pretty much been the converse of the tank car side. You have seen the orders there industry-wide have pretty much dried up over the last couple of quarters, which makes sense. That's consistent with what you is been saying over the last conference calls -- the last two conference calls. Can you give us an update on when you see that starting to pick up with natural gas prices coming back little bit now?

Sure, and I'm sure you read a lot of the same analysis that I read, and really I think what drives drilling and exploration is the price of gas. And if we see that start to stay north of $3 and approach $4, we will probably start to see drilling for dry gas to resume. Keep in mind that the frac, sand and proppants are also used for wet glass and wet oil exploration as well, and pricing there has been a little more stable. We put a lot of cars into the marketplace to serve that part of the industry. It does take some time for those cars to be absorbed. And I think generally we're thinking there might be a recovery there in the first half of 2013.

If I could just ask one last question on the pricing side. If I look at the per car -- if I look at the value of your backlog on a per car basis, that is up about something like 11% sequentially, I believe. I understand some of that is going to be mix. Can you maybe try to segment that 11% increase between mix and pure price? Or any color you can provide on pure price would be helpful?

It is always difficult to general size about pricing. Clearly the mix of cars that we are now taking orders for are higher value cars. And also the cost of steel -- the specialty steel that used in the manufactured railcars and steel components have also experienced significant price increases, resulting in the corresponding increases in the price of the railcars. So the increases you are seeing are driven both by supply and demand as well as by component and steel costs.

Okay. Thank you.

Thank you. We will take our next question from Thom Albrecht with BB&T Capital Markets. Go ahead, please.

Hey, just a follow-up on the wind towers. So given the fact that your press release used a plural word -- plants -- can we assume that by maybe year end that the amount of plants dedicated to wind is going to be maybe as little as one? And then secondly, in the rebound in energy revenues sequentially and year-over-year, I know some of this will be in the 10-Q, but was that driven mostly by non-wind recovery revenues?

Thom, this is Tim. I don't think we are in a position right now, because Bill said he is having conversation with a customer, to really -- we really can't say whether we are going to have one or two plants involved with wind, right?

Absolutely. So a little uncertainty around that right now, Thom. As I said in my comments, we will work on our planning into the third quarter. On the revenue side, the revenues in our non-wind tower businesses within the energy equipment were better, and in particular on the container side, and a bit of that on the storage container side, consistent with kind of the oil and gas theme within Trinity right now. So that is an opportunity for growth as well.

Okay. That's good color. That still helps me enough to articulate that to folks. So thank you.

Thank you. We will now you take our next question from Mike Baudendistel with Stifel Nicolaus. Go ahead, please.

Thank you. You cited some competitive pressures in the highway products business. Can you just remind us kind of who your competitors are there, and is that for the highway guard rail business specifically?

I'm probably not going to cited the individual competitor. There is a lot of private companies in the business, particularly on a domestic basis. We do participate internationally as well, and so that broadens the number of customer -- or competitor names across the board. The market has been a little competitive, a little soft. I think it is mostly states' inability to plan for a long-term basis, and so the product tends to be focused more towards the commodity base product, a little lower value product, and not to the higher end, high value products for Trinity. So we are hopeful that the two year bill will improve her prove those conditions.

And we are set up very well [to be able to] compete in this market where it is, Bill, from a cost and standpoint. Wouldn't you say?

We compete in the stronger market and the softer market as well. Our plants and operations are doing a great job keeping us competitive.

Great. Then another question on the wind towers. Assume that if there is a large -- it sounds like there is a large decline in the revenue activity there, that you're going to try to transition those facilities to other thing. If you are unable to do that, and those facilities are more or less idle, can you give us a sense for how much of those costs are variable versus fixed? And how much overhead there would be as a percentage of the lost revenue?

Sure, Mike, this is James. It is hard to pinpoint that right now. As we talked about, we have a lot of manufacturing flexibility. I think as we look as we move into 2013, if that demand declines as we have some expectation, then we will look at repositioning a portion of that production capacity. As Tim mentioned, we are very good at that, and our teams are doing a good job at that. So I think it's too early to make those types of forecasts in terms of fixed and variable overheard and those type things without understanding what other products within our Company we may be able to put into those facilities if we were to have such a change.

Great. And then just one final one on the transition of some of the facilities from wind towers to tank cars. It sounds like you have some extra costs there. Is there incremental capital you [have] required as well? Do you have all of the equipment that you need to do that?

This is James. We mentioned the $0.08 to $0.10 that we expect the second half of the year, and that is the expense side. We did during the quarter from the last conference call update our capital expenditures guidance, and we took that up about $20 million. And the majority of that is in relation to opportunities we see in the oil, gas and chemicals industries, inclusive of the types of things we've talked about in the production capacity shifts.

Great. That's very helpful. Thank you.

It appears we have no further questions at this time. I will now turn the conference back over to our presenters for closing remarks.

That concludes today's conference call. A replay of this call will be available after 1 PM Eastern Standard Time today through midnight on August 2, 2012. The access number is 402-220-0121. Also the replay will be available on the website, located at www.trin.netWe look forward to visiting with you again on our next conference call. Thank you for joining us this morning.