Trinity Industries Inc (TRN) 2014 Q4 法說會逐字稿

Before we get started, let me remind you today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to eliminate estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain -- of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Good day, everyone, and welcome to today's Trinity Industries program.

(Operator Instructions)

Please note, this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Gail Peck, the Company's Vice President of Finances and Treasurer. Please go ahead.

Thank you, Jennifer. Good morning, everyone. Welcome to the Trinity Industries fourth-quarter 2014 results conference call. I'm Gail Peck, Vice President, Finance and Treasurer of Trinity. Thank you for joining us today.

This morning, we are going to have two parts of our conference call remarks, which will extend the time we allocate to prepared remarks. First, we will begin with an update on the legal aspects of the ET Plus System. We will then follow with our normal quarterly earnings conference call format.

Today's speakers are Tim Wallace, our Chairman, Chief Executive Officer and President; Theis Rice, Senior Vice President and Chief Legal Officer; Bill McWhirter, Senior Vice President and Group President of the Construction Products, Energy Equipment and Inland Barge Groups; Steve Menzies, Senior Vice President and Group President of the Rail and Railcar Leasing Groups; and James Perry, our Senior Vice President and Chief Financial Officer. Following their comments, 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.

Thank you, Gail, and good morning, everyone. Before we provide comments about the quarter and our outlook, Theis Rice, our Senior Vice President and Chief Legal Officer, will provide an update on our highway products litigation matter. This is the first time that Trinity has been involved in litigation that has drawn such media attention and we thought it would be helpful for Theis to provide an update on the call this morning.

We continue to believe Trinity will be ultimately successful in our legal defense. We are confident in the ET Plus System is in compliance with the controlling regulatory requirements. I'll now turn it over to Theis.

Thank you, Tim. Before I begin, I would like to reiterate that it is extremely important to our Company that all of our nation's roads are safe. As most of you know, last October, Trinity and Trinity Highway Products received an adverse jury verdict in the False Claims Act litigation involving the ET Plus System.

Trinity Highway Products manufacturers and markets the ET Plus, pursuant to an exclusive license agreement granted by Texas A&M University System. Our next hearing with the district court in Marshall, Texas is scheduled for March 3.

Trinity's post trial motions continue to emphasize that the allegations in the case are wholly without merit and that the damages awarded by the jury are based on insufficient evidence. While the district court has ordered mediation, we continue to argue that judgment should be entered in Trinity's favor and to prepare for an appeal to the Fifth Circuit Court of Appeals, should that become necessary.

Following the adverse jury verdict, the Federal Highway Administration requested that we conduct eight separate crash tests pursuant to crash test criteria required in National Cooperative Highway Research Program Report 350. The FHWA noted that these tests were being conducted to evaluate, confirm and demonstrate performance of the ET Plus in compliances with Report 350 crash test criteria. Trinity submitted an ET Plus test plan, which the FHWA approved.

In December and January, an independent testing agency conducted these eight crash tests. All eight test articles were randomly selected by FHWA representatives from the ET Plus inventory at the California Transportation Department and shipped directly to the independent testing facility in San Antonio, Texas.

FHWA representatives, state highway officials, industry association representatives, and media representatives attended the live tests. On February 6th, the FHWA reported that the ET Plus passed the first four crash tests conducted at a 27 3/4-inch guardrail installation height. The 27 3/4-inch guardrail height accounts for the vast majority of ET Plus systems installed on the nation's highways.

The last four tests at a 31-inch guardrail height were recently completed. The data on these four tests was submitted to the FHWA earlier this week for review and processing. With the 27 3/4-inch test, the FHWA issued its letter expressing the ET Plus passed all four tests approximately two weeks after receiving the test report.

When the 31-inch guardrail height test data has been fully analyzed by the FHWA, they will again report their findings. We feel confident the ET Plus is in compliance with the regulatory requirements.

As Tim stated in his comments, Trinity has never been involved in an issue that has generated as much media attention as this litigation. We believe it would be helpful for our stake holders to have a little background information on the person filing this case, Joshua Harman, and his key consultant and witness, Dr. Dean Sicking.

For many years prior to 2011, one of Mr. Harman's companies purchased guardrail products manufactured by Trinity Highway. In 2011, Trinity Highway learned that Mr. Harman was copying the ET Plus by manufacturing, selling and installing his devices in the commonwealth of Virginia.

When the Virginia Department of Transportation requested documentation concerning his devices, he altered past Trinity Highway invoices to make it appear as though he had purchased the devices from Trinity Highway when he had not. The Virginia DOT required Mr. Harman remove his copies of the ET Plus from Virginia's roadways.

Mr. Harman initiated his pursuit of a False Claims Act case against Trinity and Trinity Highway shortly after he was required to remove his products in Virginia. In conjunction with his False Claims Act lawsuit, Mr. Harman conducts numerous interviews with media representatives throughout the country.

During these interviews, Mr. Harman makes a number of accusations about the performance of the ET Plus that are not supported by factual evidence or scientific data. Should Mr. Harman ultimately prevail in his litigation, he stands to receive somewhere between 20% and 30% of the monetary amount awarded upon final judgment.

Dr. Dean Sicking is a consulting expert currently on the staff at the University of Alabama Birmingham who was retained by Mr. Harman's attorneys to assist in the litigation. Dr. Sicking has developed, licensed and is currently receiving royalties on end terminal products that compete directly with the ET Plus. We believe Dr. Sicking stands to gain financially by discrediting the ET Plus.

Since Trinity Highway suspended shipment of the ET Plus last October, Dr Sicking's competing products have experienced increased demand. In the fall of 2014, a former student of Dr. Sicking's while at the University of Nebraska Lincoln, released a study conducted by the University of Alabama Birmingham, which was highly critical of the in-service performance of the ET Plus. Recently, this study was discredited in four independent peer reviews commissioned by the FHWA.

We expect Mr. Harman and Dr. Sicking will continue their campaign to discredit the ET Plus and Trinity Highway, ignoring facts and data that confirm the ET Plus system complies with applicable regulatory requirements. We maintain our position that Mr. Harman's and Dr. Sicking's allegations pertaining to the ET Plus system are without merit. We are confident the ET Plus is in compliance with applicable regulations.

In summary, the ET Plus has been successfully crash tested more times than any other product of its kind. We intend to vigorously defend our products and our long-standing reputation for ethical and honest business practices against allegations based on fiction rather than fact. We are confident the ET Plus performs within the controlling regulatory criteria when properly installed and maintained.

Today, our Form 10-K will be filed. In it, we address this litigation, as well as other litigation involving the ET Plus system. For those of you who would like more details related to my comments today, please refer to our Form 10-K and a website created by Trinity Highway Products to address the facts pertaining to the ET Plus. This site is located at www.etplusfacts.com.

I will now turn the call back over to Tim.

Thank you, Theis. I'll now provide my comments pertaining to our earnings conference call. I'm very pleased with Trinity's financial performance during 2014.

In 2014, Trinity established a significantly higher earnings level. We utilized the strengths of our integrated business model to achieve this record level of financial results. We established record annual revenues, net income, and EPS in 2014.

Trinity's net income increased from $375 million in 2013 to $678 million in 2014, an 80% increase. This was a major accomplishment on the part of our whole Company. I continue to be impressed with how our employees drive operating leverage efficiencies to the bottom line.

Our businesses are creating value by leveraging their combined expertise, competencies and manufacturing capacity to produce quality products for a broad range of industrial markets. In addition, I was impressed with the transactions we completed and the impact they had on our earnings. During the year, we also made significant progress in the business development area and I'm optimistic about our growth opportunities in 2015.

Our real group generated strong financial results, reporting record revenues and operating profit during the fourth quarter and full year. I remain impressed with this group's ability to continually increase production levels through manufacturing conversions, line changeovers and additional efficiencies. These efforts significantly enhance the Company's profitability. I expect this level of effort and performance will continue as we progress through 2015.

Our railcar leasing company delivered another quarter of full-year solid results. A portion of our earnings increase and cash flow contribution in 2014 was due to the level of railcar sales generated by our leasing business. Transactional activities play a key role in our leasing business model and we expect these activities to continue.

I'm pleased with our inland barge group's ability to shift production as market demand changes. During the past two years, this group has greatly enhanced its manufacturing flexibility by shifting portions of its manufacturing capacity to meet customers' needs. This has been a major accomplishment.

The fourth quarter financial performance of our energy equipment group continued to show improvement year over year. Our construction products group was not profitable during the fourth quarter as a result of the challenges associated with our highway products litigation and the unusual -- and the usual seasonal slowdown. However, their operating profit did increase 24% for the entire year.

The top side of our earnings guidance for 2015 reflects our goal of generating higher earnings in 2015 than the record level we achieved in 2014. When you consider the rapid pace of change occurring in the economy today and the fact that we established a substantially higher earnings platform in 2014, I believe we have an aggressive financial goal for 2015.

In developing our earnings outlook for 2015, we took into account the positive momentum we have been experiencing within our Company, as well as the uncertainties associated with the volatile price of oil and its potential impact on our businesses. It's early in the year and we will continue to closely monitor business conditions.

Trinity's financial and operational health remains solid. The Company has a good backlog of orders in our primary businesses, which provide visibility for planning production activities during 2015.

Our backlogs contain firm orders and some of these orders are associated with capital projects that are in process and long-term in nature. The diversity and size of our backlog, along with our proven ability to execute, gives us confidence Trinity can navigate both the tailwinds and the headwinds our businesses are currently experiencing.

We are diligently working to build upon the strong earnings platform we have established. To be a premier diversified industrial company, we recognize the importance of sustainable earnings growth. Our Company is driven by sustainable progress and we are constantly striving to reach new levels of achievement.

I'll now turn it over to Bill for his comments.

Thank you, Tim, and good morning, everyone. In 2014, the inland barge group reported an 11% year-over-year increase in revenues and a 19% increase in operating profits. As expected, operating margin for the fourth quarter declined year over year due to a change in product mix.

During the fourth quarter, we received orders totalling approximately $130 million, resulting in a backlog of $438 million at the end of December. I am pleased with our barge group's ability to respond to various demand drivers and generate efficiencies within our plans.

This group's operational flexibility is a key differentiator, enabling us to enhance profitability while responding to customer needs. During 2013 and 2014, our team shifted between several product lines to meet those needs. This flexibility is a major accomplishment.

Inquiries for hopper barges have been steady due to strong harvest. However, orders for new 30,000-barrel tank barges have slowed, as the market has absorbed a significant amount of new equipment in the last two years. Demand for 10,000-barrel tank barges that serve the chemical markets remain steady, but this represents a smaller segment of the tank barge market.

Our product mix during the first half of 2015 will be similar to the product mix during the fourth quarter of 2014, with similar margin expectations. At this time, we expect lower margins in the back half of 2015 due to uncertainty related to the demand in the tank barge market.

For the year, the construction products group reported year-over-year revenue growth and profit. However, the group reported a small loss in the fourth quarter. While we expected lower results for the quarter due to normal seasonality, actual results came in below our guidance due to the challenges in our highway products business related to the ongoing litigation.

The current Federal Highway Bill expires in May of 2015. As a result, some state highway authorities are holding off on longer-term projects until the new Highway Funding Bill is passed.

With that being said, I continue to be pleased with the results in our aggregates business. This business has benefited from the addition of light weight aggregates to our product portfolio and is performing above our original expectations.

The energy equipment group reported record revenue for the fourth quarter and full year. Operating profit in 2014 increased by 76% year over year. Revenues increased primarily due to the acquisitions we made in 2014, coupled with higher shipments of storage containers serving the energy sector, as well as increased deliveries and improved operational performance in our wind power business.

As part of the Company's overall diversification efforts, Trinity acquired the assets of a number of businesses in 2014. These businesses are moving through the integration process and we expect them to contribute positively to the bottom line in 2015.

The acquisition of Meyer Steel Structures provides Trinity a market-leading position in the North American utility steel structures market. Market leadership is a key consideration when assessing potential acquisitions.

While the current market for utility structures is very competitive, we anticipate investment in this industry over the long-term will improve as the demand fundamentals are positive. Overall, I expect continued financial improvement from the energy equipment group in 2015.

And now I'll turn the presentation over to Steve.

Thank you, Bill. Good morning. I am very proud of our rail and leasing group's record-setting performance in 2014. The focused efforts of our dedicated TrinityRail team continued to enhance our efficiencies and flexibility while driving premier performance. Our business has solid momentum moving into 2015 amid healthy railcar market fundamentals.

We continue to benefit from broadening railcar demand. During 2014, the North American railcar industry experienced very strong demand, reporting a record number of industry orders for new railcars.

Market demand drivers for new railcars shifted from largely crude by rail related at the start of the year to more broad-based market drivers as the year progressed. The expansion in the downstream energy markets, as well as the economic recovery in North America, resulted in increased demand for a broad range of railcars.

The industry received more tank car orders during 2014 than the previous year, despite the pause in orders for tank cars affected by pending HM-251 regulations. Many of the tank cars ordered in 2014 will transport refined petroleum products, chemicals, liquefied gases, acids and fertilizers. Once HM-251 is finalized, we expect demand for tank cars to increase further.

The freight car market rebounded sharply in 2014, benefiting from a broadening of demand as the year progressed, with orders supporting not only the energy markets, but agricultural, automotive, construction and steel industries as well. With over 600,000 railcars in the North American railcar fleet over 20 years old, and over 440,000 railcars over 30 years old, replacement of the aging fleet is also a key factor driving freight car demand. At the end of the year, the industry backlog stood a record 143,000 railcars, reflecting a healthy and diverse mix, covering many different commodity services.

During the fourth quarter, TrinityRail received orders for 17,770 new railcars. At year end, our backlog stood at 61,035 railcars with a new record value of $7.2 billion.

This level of backlog provides TrinityRail with an unprecedented level of visibility to plan our production. We are pleased with the diversification of our order backlog, consisting of a broad mix of tank and freight car types.

Given the considerable attention paid to crude by rail, some may assume that a disproportionate share of our backlog is intended for cruel oil service. In fact, the vast majority of the crude oil tank cars remaining in our backlog will be delivered in 2015 and only comprise a modest segment of our production plans. We look forward to an increase in demand for tank cars serving the crude by rail market once HM-251 is finalized.

Solid order inquiries thus far in the first quarter continue to reflect a broad mix of railcars. New railcars orders taken today will result in shipments well into 2016 and for some railcar types into 2017.

Due to our extensive backlog, comprised of a broad mix of tank and freight cars, TrinityRail continues to benefit from extended production runs that generate high levels of productivity and efficiency. During the fourth quarter, our rail group set another record, our eighth consecutive, for quarterly revenues and operating profit, with the delivery of 8,460 railcars. For the full year, we delivered a record 30,255 railcars.

In 2015, we expect railcar deliveries in the range of 32,000 to 34,000, establishing another new record level. We continue to make investments in our business to prepare it for the new HM-251 tank car regulations, which are expected from the US Department of Transportation and Transport Canada, on or before May 31st. TrinityRail is well positioned to meet increased demand for both new-built tank cars and modifications to existing tank cars once the regulations are put in place.

During the fourth quarter, our leasing group reported an increase in year-over-year revenue and operating profit due to strong market fundamentals and new additions to the wholly owned lease fleet. Rail fleet utilization remains quite high across the industry and lead times for new railcars continue to be extended.

These factors, combined with stable new railcar prices, continue to drive strong lease renewal rate increases and favorable renewable terms across most railcar types. I expect that our lease fleet performance will continue to benefit in 2015 from these healthy rail market fundamentals.

Our total lease portfolio now stands at 75,930 railcars, after taking delivery of 1,420 railcars in the fourth quarter. At the end of the year, 28% of the railcars in our order backlog were committed to customers of our leasing business, bringing our existing lease backlog to $2 billion.

We continue to develop relationships with institutional investors interested in owning lease railcars and they would like Trinity to manage their investments. Our strong lease origination capabilities and large diverse lease fleet make us an attractive partner for financial institutions who consider lease railcars to be good long-term investments. With the current high level of market liquidity and interest by financial institutions, I expect transactional earnings from sales of our lease railcars to continue during 2015.

In summary, TrinityRail's integrated business platform is well positioned and responding effectively to strong railcar demand. During 2014, our rail group and leasing and management services group delivered outstanding results. I expect our performance to be strong in 2015 as well. Our operating and financial flexibility continue to differentiate TrinityRail, enhancing our position as a premier provider of railcar products and services.

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

Thank you, Steve, and good morning, everyone. Yesterday we announced strong results for the fourth quarter and full year 2014. For the quarter, the Company reported record revenues of $1.7 billion and EPS of $0.86, a year-over-year increase of 32% and 19%, respectively.

For the full year, we reported both record revenues and EPS of $6.2 billion and $4.19, respectively. These figures represent year-over-year revenue and EPS growth of 41% and 76%, respectively.

Theis provided an update with respect to the highway litigation and related matters. As a reminder, litigation costs related to the federal case are reported in corporate and any product liability-related expenses are reported in the construction products group. As it relates to litigation, we have also previously disclosed we could be required to post an appeal bond upon the district court's entry of a final judgment. We remain confident we will be able to obtain such a bond if needed order an unsecured basis.

During the fourth quarter, the Company did not repurchase any shares of its common stock. We determined it was inappropriate to repurchase shares while the FHWA-requested crash testing was in process.

For the full year, the Company purchased $31.5 million of its shares, leaving $218.5 million of availability under the current authorization. We maintain a strong balance sheet with the readily available liquidity of approximately $1.6 billion at the end of the fourth quarter.

I will now discuss our current outlook for 2015. As provided in our press release yesterday, our guidance for 2015 annual EPS is $4 to $4.40. We expect the level of quarterly EPS to be relatively consistent throughout the year.

I would like to remind you that the first quarter of 2014 included significant sales of leased railcars to Element as the alliance started. As a result, we do expect first-quarter 2015 EPS to be below last year's level.

Our annual EPS guidance includes the following assumptions. For the year, we are assuming a tax rate of approximately 33.5%, though this rate could vary quarter to quarter. Due to our partial ownership in TRIP and RIV 2013, we expect to [devote] between $30 million and $35 million of non-controlling earnings in 2015.

The two-plus method of accounting is expected to reduce EPS by $0.14 per share in 2015 compared to calculating Trinity's EPS directly from the face of the income statements. And finally, please refer to yesterday's press release for the dilutive impact from the convertible notes and the weighted average share count for 2015.

Our earnings outlook for 2015 reflects the positive momentum we are experiencing. We are well positioned with the $8.1 billion backlog in our businesses. At the same time, our businesses acknowledge some uncertainties which could impact our performance in 2015.

Our customers are assessing the impacts of oil price volatility on their businesses, with some obviously experiencing negative effects, while others benefiting more positively from lower prices. We are also closely watching various labor situations in the US, including those causing the temporary shutdown of oil refineries, as well as interruptions of imports and exports on the West Coast.

Our guidance also includes a high level of transactional earnings due to the sale of leased railcars. We are working diligently to fulfill this portion of our earnings expectations as a normal course of our business model going forward.

In 2015, as Steve mentioned, we expect our rail group to deliver between 32,000 and 34,000 railcars during the year. This will result in total revenues for the rail group of between $4.2 billion and $4.4 billion, and an expected operating margin of 18% to 19%. We expect our leasing group to record operating revenues for 2015 of $700 million to $725 million, with operating profit from operations of $320 million to $340 million.

Our 2015 guidance includes approximately $1 billion of sales of leased railcars to Element, which will fulfill the $2 billion strategic railcar alliance that we began in December of 2013. We expect the timing of the sales of Element to be more weighted towards the second half of the year.

Our guidance assumes most of the leased railcars purchased by Element will be sold directly from the rail group. However, based on actual timing, a portion of these sales could be ultimately recognized as car sales in the leasing group.

In 2015, we anticipate the leasing group will report proceeds from sales of leased railcars from the lease fleet of approximately $430 million to $450 million, with profit of $115 million to $130 million. This includes sales of leased railcars to third parties other than Element.

Transactional earnings have been a key component of our results and we expect these earnings to continue. We have developed strong relationships with institutional investors looking to own leased railcars and the level of interest from this group remains high.

We expect our construction products group to record 2015 revenues of $510 million to $540 million, with an operating margin of 8.5% to 9.5%. The decline in our 2015 expectations for this group as compared to 2014 is due to ongoing impacts from our ET Plus litigation and uncertainty around highway funding at the federal and state levels.

Our inland barge group is expected to report 2015 revenues of $620 million to $650 million, with an operating margin of 13% to 14%. As Bill mentioned, there is softness in the demand for tank barges, partially offsetting solid demand for hopper barges.

We expect our energy equipment group to generate 2015 revenues of $1.1 billion to $1.25 billion, with an operating margin of 11% to 12%. This includes a full year of operating results from the acquisition of the assets of Meyer Steel Structures.

The acquisitions we made in 2014 were primarily within the energy equipment group and are expected to produce EPS in 2015 of approximately $0.10 to $0.15. The actual operating results are higher, but amortization due to purchased price accounting of certain acquired assets reduces earnings by about $0.02 per share in 2015. We are pleased with the integration of these businesses to date and look forward to their growth potential in 2015 and in future years.

Our acquisition strategy has been focused on industries and products with more stable long-term fundamentals and growth opportunities that can further diversify our portfolio of businesses. The businesses we acquired in 2014 meet these objectives and add value to our Company.

Corporate expenses are expected to range from $110 million to $125 million during 2015, which includes ongoing expenses related to the highway federal litigation matter. In 2015, we expect to eliminate between $600 million and $650 million of revenue and defer between $115 million and $130 million of operating profit, due to the addition of new railcars to our lease fleet. We expect these eliminations to be more weighted to the first half of the year.

We expect to eliminate between $375 million and $395 million of revenues from other inter-company transactions during the year. The net result of our revenue guidance leads to an expectation of between $7.5 billion and $7.9 billion of gross revenues and $6.5 billion to $6.9 billion of net revenues for the year, representing net growth of between 5% and 10% as compared to 2014.

As it pertains to cash flow, we expect the annual net cash investment in new railcars in our lease fleet to be between $55 million and $70 million in 2015, after considering the expected proceeds received from lease railcar sales during the year. We may also consider the opportunistic purchase of existing lease railcars during the year. Full-year manufacturing and corporate capital expenditures for 2015 are expected to be between $250 million and $300 million.

As we said on our last earnings call, we plan to be conservative with respect to capital allocation due to the ongoing highway litigation. We have significant cash on hand and access to capital through our committed lines of credit at both the corporate and leasing levels. Current economic uncertainty could present opportunities to make acquisitions at favorable valuations that add long-term value to the Company. If we see such opportunities, we would certainly consider a transaction.

As a normal course of business, we continue to visit regularly with our Board of Directors about our capital planning. The upper end of our EPS guidance range reflects our goal of achieving a higher level of earnings in 2015. As Tim indicated in his remarks, we established a record earnings platform in 2014, topping our previous record set in 2013.

We recognized the importance of sustainable earnings growth and the Company's business model is aligned with that goal. Our firm backlogs provide us with production visibility in certain businesses and our balance sheet is strong. We are well positioned in 2015.

It is early in the year and we will closely monitor changes in business conditions and their potential impacts on our diversified portfolio of businesses. At the same time, we are pleased with the opportunities ahead of us.

As we prepare for our question-and-answer session, please note that Theis's remarks today pertaining to the ET Plus litigation were very thorough. We will have more detail in note 18 of our Form 10-K that we will file later today. Thus, we would like for the questions today to be focused on our operations, as we are unable to comment much further on the litigation or technical aspects of the crash test.

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

(Operator Instructions)

We'll take our first question from Steve Barger from KeyBanc Capital.

Hi, good morning.

Good morning.

You have a lot of cash on the balance sheet, James, as you just mentioned; presumably a lot of embedded cash flow in the backlog, given how profitable you are right now. If you see a favorable resolution to the crash test or the litigation, do you immediately resume the buyback? Do you have acquisitions in the pipeline that you can see that you're close on? I'm just trying to get a sense for -- if you become more free, in terms of capital allocation, what you do first.

Yes, Steve, thanks. This is James. Appreciate the question, and you being on the call today.

As we look at our capital allocation, as we said, we're still awaiting final results to be released on the crash test, and we'll proceed accordingly. We visit very regularly with the Board, as I said.

In terms of capital allocation, between internal CapEx, our share price, our share repurchase program, acquisitions -- we certainly have those opportunities in front of us. I think you saw last year, with investment of over $700 million in acquisitions, over $200 million in internal CapEx, which remains important to us, and some share repurchase, we certainly see allocation opportunities in front of us.

There is a pipeline of acquisitions out there that we could pursue in the infrastructure space, as we've talked about before. We would certainly see some optimism and positive momentum in that direction. But we would certainly visit with the Board, and consider the most appropriate allocation at that time.

And just to clarify one thing: You said you didn't think it was appropriate to buy back shares while the crash test was going on. When you get the test back, and assuming that it's positive, do you need to wait for the litigation to end to start buying shares, or is that something you would do more quickly?

Yes, Steve, I think we would consider that sooner than that. The litigation could take some time; so, as we get the results back from the crash test, and that information becomes public, which it hasn't been, of course, as we've gone through each set of crash tests, we would consider that resumption. But again, that's a conversation with our Board as we take on specific activities.

Understood. I'll just ask one more and get back in line because time is short. You mentioned that transactional earnings are going to be a big part of the story going forward, and I know some of that is built in the guidance, but are there any transactional earnings beyond what we already know about or normal operations built into guidance? In effect, I'm asking: Are there any other sizable transactions that you're anticipating?

This is still James, Steve. Thank you. When we look at transactional earnings, we are really focused on those railcar sales, but from the leasing group, as well as directly from the rail group, as new cars with leases come off the production line. We have our alliance with Element. As we said, there's a lot of institutional investor interest in the market that we're certainly pursuing. No other non-railcar-type transactions will be built into the guidance at this time.

Got it. Thank you.

And we'll go next to Allison Poliniak from Wells Fargo.

Hi, guys. Good morning. Just on the construction product segment -- Bill, you had talked about the highway stuff. Is it just the fact of the litigation specific, or are there greater implications with ET Plus on your other highway products that people are maybe staying away? Could you maybe clarify some of your comments there?

Yes, Allison, sure. This is Bill. The ET Plus is the primary driver, but with it goes standard guardrail. It's sold as part of a package; and so, a little bit of a slowdown and pause from that revenue perspective, but there's nothing systemic in the business.

Okay, great.

And then, Steve, you mentioned, I think, lease renewal rates have increased and so forth. And obviously a lot of concern about the tank car, just given where crude is today -- carrying -- cars being parked at this point. What's your view? Is the offshoot of the refined and the gas products enough to maintain that long-term lease rates, or do you see some risk as we move through the year with that, if crude stays at this level?

Thank you, Allison. This is Steve. I think I said in my script that we're seeing strong demand for tank cars that carry commodities other than crude oil -- pressurized gases, acids, fertilizers, refined petroleum products, other chemicals. That really is driving the tank car market.

We've seen a weakening in tank car rates with respect to crude oil, particularly in the spot market; contracts that might be inside one to two years. However, long-term lease rates are remaining at historically high lease-rate levels. We typically don't participate in the spot market, so these short-term rates really haven't had any meaningful impact on our business. Overall, we continue to be very pleased with renewal trends in our tank car business, and we're very pleased with the lease rates, as well as the tenure on a very broad number of our car types.

Great. Thanks so much.

And we'll go next to Justin Long from Stephens.

Thanks, and good morning. I was wondering if you could speak about the competitive dynamics you're seeing today in the railcar market? Steve, you just gave some helpful color on lease prices just a second ago, but I'm curious if you're seeing any changes in new car pricing over the last few months as well?

Steve?

Actually, I'm very pleased with the way new car prices have held firm. Again, the broad-based demand that we have, I think, supports that. Prices for tank cars have held firm.

We've seen increases in certain freight car types. We've had significant number of freight car orders, which should continue to support demand, and support good pricing there. Overall, we're very pleased with the pricing environment in the leasing business, as well as for new cars themselves.

Okay, great. And you mentioned in the prepared remarks that inquiries have stayed strong thus far in the first quarter. As you think out over the next few quarters and the remainder of the year, what are some of the key car types that you think can drive strength in the order book from here?

Sure. Well, certainly we expect demand for tank cars to continue to be strong, as you see the downstream impact of abundant low-price natural gas and crude oil. In addition, I would expect that following HM-251 regulations, that we would see a resumption in demand for tank cars to transport crude oil.

In the freight car side, again, I mentioned the replacement demand for an aging fleet. That's an underlying fundamental that remains constant.

We're seeing strong demand for covered hoppers, well beyond the small cube-covered hoppers that are used for frac sand and proppants. We're seeing demand for covered hoppers for agricultural products, as well as resins and other plastic pellets. So, we're very pleased with what we see, and broadening demand in our freight car sector as well.

Okay, great. I wanted to follow up on a point you made earlier on the tank car backlog; a couple questions there. First, is there any color you can provide on how long your tank car backlog extends today?

Secondly, you mentioned that there's a lot of non-crude exposure in that backlog. Is there any more color you can provide on how that tank backlog breaks out between crude and non-crude?

Justin, I really would prefer not to get into that granular detail. I think I did mention in my remarks that certain production lines extend into 2016 and 2017; and our production of tank cars is well beyond the crude oil cars that we expect to complete here in 2015.

Okay. Fair enough. I'll leave it at that. Thanks for the time.

And we'll go next to Bascome Majors from Susquehanna.

Good morning. I was curious, on the manufacturing CapEx guidance -- last year was what looks like an all-time high for you, and you guided that up roughly 25% at the midpoint. Can you walk us through where you're investing, what businesses, where you're adding capacity, where you're working on efficiency, and how you expect that to play out from a footprint and margin enhancement standpoint through 2015 and beyond?

Sure, Bascome. This is James. Yes, last year was a higher level than we had seen before. We certainly had some projects carry over from last year into this year.

As Steve has talked about, we have expanded capacity in our rail plans. We've certainly invested in preparing for HM-251 through the maintenance facilities; and that's been a significant investment that we think will generate nice returns for us, and prepare us very well for this new environment with tank car regulations.

But across the board, we always had maintenance capital expenditures at these high levels of utilization in our facilities, as well as expansion when we feel that's appropriate. It's pretty broad-based, but a little more focused on the rail side with the capacity we have there right now.

And broadly speaking, on rail, I know you reopened a plant in Georgia last year. Where is that process as far as getting up to full run rate, and how far do you expect to expand your rail capacity going through 2015?

Steve, do you want to take that?

Sure. We're ramping up the Georgia facility. We're really pleased with the progress that our team's made there. We've really positioned that plant to be a multi-purpose plant, capable of doing several different car types, as well as -- it certainly has some flexibility to expand, should we see an increase in demand near term.

All right. Just one other question, following up another comment you made about focusing on monetizing the leasing portfolio to some extent with partners like Element. That Element deal officially is slated to run off at the end of this year. Do you see a potential to perhaps extend that partnership into 2016 in some official capacity? Or perhaps find another financial partner with a similar deal -- maybe not the same magnitude, but that could carry that kind of a relationship into next year with some visibility?

Bascome, Steve again. We're very pleased with our relationship with Element. Our teams are working very well together. We are in discussions to expand that relationship beyond 2015, and have every reason to believe that we can reach successful negotiations there.

As I mentioned, we have a number of financial institutions very interested in investing in railcars long term. With our lease portfolio and our $2-billion lease backlog, we see ample opportunities to continue to work with these institutional investors on these type of asset sales.

The other key to it is: We also maintain the commercial relationships with those lessees by managing those investments. And it's an important part of our platform -- our leasing platform -- and building that business.

All right. Well, thanks for the time this morning, guys.

And we'll take our next question from Matt Brooklier from Longbow Research.

Thanks. Good morning. I'm just trying to get a sense for the delivery guidance that you laid out for the rail group in 2015. I think it matches what you had talked to in third quarter, but can you remind us: Does that range -- is that inclusive of the -- any contribution from the Georgia facility that you guys reopened in 2014?

Matt, Steve. I believe that our guidance of 32,000 to 34,000 equates pretty comfortably to the production rate that we transitioned in the third and fourth quarters of last year, and it would include at least a modest level of contribution from the Cartersville facility in Georgia. We certainly have ability to take it further if we see the right transactions and the right demand in front of us.

Okay. So, I guess the -- we should be thinking about that 32,000 to 34,000 as there is some Georgia contribution, but there could be some flex-up, I guess, depending on final regulations and how that could play out moving forward?

I think that's a fair assessment, Matt, yes.

Okay. And then, with the rail group margin guidance for 2015 -- I think it's roughly equivalent to what you achieved in 2014, yet your volume's going to be up at the midpoint of what we've laid out, about 10%. I'm just curious: We're getting incremental volume throughput. I think some of these start-up costs and maybe some line changeovers are kind of fading into 2015. I'm just trying to get a sense for -- what are some of the headwinds that, with this additional 10% volume, would hinder your ability to get further margin expansion at rail group in 2015?

Sure, Matt. Steve again. I'll echo Tim's comments, how pleased -- and when we see the performance of our operating team, they continue to excel and set new targets for themselves. And I know they look for ways to continue to improve their productivity and efficiency.

We experienced some margin headwinds in the fourth quarter due to some product mix changes, and we also have had some start-up costs from our investments in manufacturing and maintenance facilities. I think our margins in 2015 continue to reflect a strong pricing environment, and, again, I expect our team to continue to perform at very high levels, and no telling what they are able to achieve.

Okay. Helpful. Appreciate the time.

And we'll go next to Mike Baudendistel from Stifel.

Related to the last question on margins, I think there is a perception out there that the tank cars that you build are dramatically higher margin than the freight cars. Is that necessarily true, as you transition to a broader book of business over the next couple years?

You know, it's really hard to say, Michael, without giving the details of various car types. We're seeing a very strong pricing environment for freight cars, and I'm very pleased with the margins we're achieving there, and I think the trends there continue in the right direction for us.

Okay, great. Also wanted to ask on potential for acquisitions going forward -- a lot of the recent ones have been concentrated on the energy equipment group. Do you think that's going to continue to be the focus going forward? And with oil prices coming down as much as they have, does that set up some maybe better opportunities for you with [possibly sellers'] expectations coming down?

This is Tim, Michael, reporting on that. We're just -- we're very optimistic with respect to acquisitions. We don't set specific target allocations for acquisitions. We focus on specific areas that we've identified that we think fit our business.

The acquisitions that we acquired during 2014 have a really good cultural fit with our business. And so, we'll look for manufacturing businesses that are manufacturing infrastructure-type products that are priced appropriately that would fit within the portfolio of businesses that we currently own.

Okay. Thank you.

Just one final one, and that's on the inland barge group. That's one of the only segments where the backlog was down from the previous quarter. Could you give us a sense for how many of those barges are moving crude oil versus other types of petrochemicals or agriculture products?

Mike, this is Bill. The 30,000 barrels that I mentioned in my script as moving a little slower are primarily the crude barges. The 10,000-barrel tend to be more the chemical-oriented barges, as Steve said -- kind of downstream products. That is a smaller population of barges on the river way. But that is the population that seems to be in favor right now, from an order perspective.

Okay, great. Thanks very much.

And we'll go next to Bill Baldwin from Baldwin Anthony.

Good morning.

Good morning.

Steve, can you give us some color and bring us up to date on what's going on with railcar manufacturing out of your Mexico -- Mexican facilities -- as far as the type -- car types you're making down there? And if you can, what percent of your railcar manufacturing is conducted in Mexico?

Bill, thanks for the question. We're very pleased with the productivity and efficiencies and quality of the products that are made in Mexico. Our Mexico facilities are making a full range of our products, including tank and freight cars, and we really don't differentiate for customers as far as whether it's a US-built car or Mexico car. Again, I couldn't be more pleased with our operating results out of our Mexico facilities.

I take it the supply chain is working well for you, then, in Mexico?

It is. We have a very well-defined and extensive logistics network set up that I think presents Trinity with competitive advantage, and is a key to our success there.

Well, congratulations on a wonderful job you fellas have been doing during this cycle here.

Thank you, Bill.

And we'll go next to Cleo Zagrean from Macquarie Capital.

Good morning, and thank you. My first question relates to orders. Could you please share any detail on how much, or if there are any place-holder-type orders for tank cars in your order book where people wanted to reserve space, but specs have to be depending upon release of final regulations? If you can share any insight into orders you have received year to date by customer type, commodity type -- anything would be welcome. Thank you.

Sure. We don't provide that type of granular detail on our orders, but, again, all of our orders, first of all, have no cancellation provisions. Secondly, I think it's certainly my understanding that the orders we're taking are for very clear needs from our customers, and I don't sense any speculative nature to orders at this time.

Any details into orders received year to date?

No, we will not provide that at this time.

Okay. Appreciate it.

My second question relates to transaction earnings. You've shared several times that you expect this to be a sustainable provider of earnings. Can you help us frame: How do you think of them as provider of contribution sustainable earnings growth?

Sure, Cleo, this is James. Thank you. We don't provide specific detail on the level that we're anticipating this year. You see the car sales, and then we have the Element, most of which is going to come through the rail group. But we consider this sustainable. As Steve just talked about, there's a lot of interest in the investment community for people to own railcars, and have Trinity manage those cars. As we've talked about, with our $2-billion leasing backlog, with our multi-billion-dollar lease fleet we already have on our books right now, there's ample supply for those investors to buy railcars from Trinity, and for us to manage those.

Thank you. And my last question is with regards to your growth strategy within industrial space, excluding rail, but perhaps to focus on energy: We understand that guidance for this year, right, does not include potentially any acquisitions. Can you help us think as to how you may be using the financing created by your lease strategy to sustain continued growth in that, and the potential contributions to overall growth for your earnings? Thank you.

Sure, Cleo. Thank you. This is James again.

Again, without providing real specifics on plans that we might have -- and we've talked about we've been somewhat conservative recently, the last quarter or so, due to the litigation and especially the crash tests going on. We consider that the cash flow generated from both our leasing and manufacturing businesses, which has been, and will remain, very strong, is able to be used for more leasing investment, for more acquisition investment, for our CapEx or share repurchase -- all those types of things we've talked about. Our executive management team and the Board of Directors look at that capital available, but from a cash flow perspective, as well as the liquidity we already have on hand, and potential access of other capital markets for growth. Tim talked about, I think, where we would see opportunities for growth, and where we might look at that, but it's hard to get more specific on where the cash comes from and where it may go.

Thank you very much. Appreciate it.

Thank you.

And we'll take our next question from Sal Vitale from Sterne Agee.

Good morning, all.

Good morning.

Steve, first question is for you -- just about the backlog, and how it pertains to the guidance that you gave of deliveries of 32,000 to 34,000. If I look at the fourth-quarter deliveries, and I annualize that, you're pretty much at the high end of the deliveries guidance there. So, how do I think about -- is there potential for production to step down, say, in the first quarter or the second quarter, just due to product line changeovers? How do I think about that?

Thanks for the question, Sal. Our fourth-quarter railcar production really reflected the delivery schedule requested by our customers at the time the orders were placed. The low end of our quarterly production rate steps down only slightly in 2015, and takes into account potential disruptions that could occur within the business from line changeovers and product mix associated with it.

Again, our projection of 32,000 to 34,000 cars in 2015 is really based upon what we know today, and where the market is today. And we have, I think, the flexibility to be able to address changes in the market as those come about. I think I've certainly indicated on this call that HM-251 regulations may indeed be one of those events this year that will change our perspective.

Right, okay. As it pertains to current backlog, is the entire 32,000 to 34,000 -- does that come from the backlog, or is there -- are there some slots for additional orders?

I might answer that question a little differently. Approximately 55% of that $7.2-billion backlog will be delivered in 2015. We really don't have any meaningful number of production slots available at this time. However, again, changes in regulations, or changes in demand, may very well change our perspective on our production plans.

Okay. That's very helpful. Thank you.

Then the other question is: I guess -- this is on the guidance you gave for -- I think if I heard this right, profit of $115 million to $130 million from sales of cars out of your lease fleet. How do I think about how much of that is due to the Element transaction, and how much is for other transactions?

Sal, this is James. Without getting real specific, we did point out that most of the sales for Element that we forecasted at this time -- we show up in our rail group. The car sale number that I gave of $115 million to $130 million -- a large portion of that would come from non-Element buyers of cars as well. As we said, that number could change geographically within our income statement, depending on exactly which cars we slot for Element as the year goes along.

Okay. That's interesting, because that's a pretty healthy number there, especially relative to prior years. From looking at 2013, I think that number was about $29.5 million. So, are there any particular transactions that you have in mind right now, or is it just what you think will come to you later in the year?

Sal, again, great question. Not to get real specific, again, as Steve mentioned, there is interest from institutional investors beyond what we've talked about in the past. And so, we'll pursue those opportunities. But that's what we've built into the forecast at this time, and feel confident about our guidance ranges as we've provided it.

Okay. Thank you. Then just the last question is on the construction products -- the results were a little lower this quarter. And you mentioned some costs. I think you said they're related to the ET Plus product. Can you quantify how much in particular that was, and was that a charge that you took maybe related to the suspension of delivery of those products?

Yes, Sal. This is James again. Thanks. Not going to get real specific. Obviously, we were lower than our guidance by about $5 million or so that we had provided in the third-quarter conference call. We would certainly say that's primarily related to things around the ET Plus product line.

As Bill talked about, there were some residual effects when we stopped those shipments in late October that bleed over to guardrail and things like that. There were some expenses related to that as the quarter went on. We wouldn't clarify or exactly quantify how much was related to different pieces of that within that portion.

Okay. Thank you.

Thank you, Sal.

And we'll take our last question from Tom Albrecht from BB&T Capital Markets.

Hey, good morning, everyone. Steve, I had a question for you. We're all trying to figure out this whole oil thing. So, let's say oil does stay down for an extended period of time. Could it be, then, that the future orders for tank cars to comply with the new regulations would already be in the backlog? Because I think that we're all assuming there's going to be another round of orders. But given that you and others kind of have a tank car of the future, what's the possibility that those are already in there, if everyone becomes much more bearish on crude-by-rail shipments?

Thanks for the question, Tom. First of all, the impact of lower oil prices, in general, I think has two sides to it. And I see certain customers' businesses benefiting from lower-priced oil, and obviously the explorers and producers are going to have some different takes on it. So, I think there are parts of our Business and parts of the railcar market that will benefit from lower-priced oil, and others that will suffer.

I don't think the orders that we have in our backlog are necessarily oil-price-sensitive. As I mentioned, virtually all of our crude oil cars in our backlog will be delivered in 2015, and those are the orders that have been placed, and those orders have remained in our backlog this year and in our plans.

I think when the new regulations come out, I think you're going to have people assessing that, and they will make determinations of whether they are going to modify existing cars or build new ones, and they will make those decisions. Again, I expect the net effect of those decisions to be very positive for Trinity.

I think there's about 81,000 cars potentially in question. What's your gut say on the mix between retrofit versus replacement?

Well, Tom, your facts are probably correct, but I couldn't make an assessment on what that split's going to be until we see the final regulations. We're in constant dialogue with our customers -- trying to understand their thinking.

I'm very pleased with the preparation our Company has made. We've been very diligent over the last year, year and a half, putting our plans in place so we can respond favorably for our customers, regardless of the outcome of HM-251. But it would be very difficult for me to project what that split would be between modifications and new cars.

Can't blame me for asking. And then, James, relative to your first-quarter guidance -- so, obviously you're not going to do $1.42 on a GAAP basis, but if we look at Q1 of 2014, continuing ops, ex the Element, it was about $0.70. Given that -- I'm kind of stating the obvious, but I want to make sure before I publish my numbers. Given the cadence of earnings being somewhat comparable through all four quarters, you would expect continuing ops earnings to be greater in Q1 than that $0.70 number?

Tom, thanks. I'm not going to get real specific. You have your, quote, continuing ops. You have transactional earnings from Element and others during the quarter, just like we did last year.

It's hard to have an apples-to-apples comparison given the multiple dynamics in our businesses. But as we said, I think the best way to look at it, as I stated in my comments, was the $4 to $4.40 during the year. That should be relatively consistent quarter to quarter.

Okay. And then maybe back to Steve: One of your competitors had been approached about a cancellation not long ago, and they were able to work through that, and it not ending up as a cancellation. I know your orders are non-cancelable, but there's a lot of dynamics that goes into that -- how you feel about the credit worthiness, and what's been the long-term relationship. Have you had anyone approach and say: Hey, could we at least have a conversation about canceling some tank car orders?

Sure, Tom. Thanks for the question. Just to be clear, the orders in our backlog do not contain cancellation provisions, and we have not taken any orders out of our backlog.

In commercial relationships, we have customers who ask us to accelerate orders. At times, we have customers who ask us to defer orders. Many times, the timing of a delivery of a railcar is to coincide with the buildout of infrastructure or the completion of a plant.

So, these are very normal discussions that we would be having with customers throughout any of our markets, and we'll work with our customers effectively to satisfy needs, and to meet our production plans as well. But I have not seen anything abnormal in this market to what we've had historically.

I would imagine, and tell me if I'm wrong here, that as some capital spending budgets have been cut, that you may see leasing as a percentage grow this year, only because if cash CapEx budgets are cut, but the demand for the cars are still there, that leasing would provide a valuable option to some of your customers. What do you think about that statement?

Tom, I think as a general tenet of leasing, that customers would prefer to put their capital into their operating business, and lease operating assets like railcars and other things. So, our ability to either sell a railcar, lease a railcar, and provide services to support those railcars makes TrinityRail a very attractive business partner for our customers.

Okay. Thank you.

Thank you, Tom.

This is Gail. It looks like that concludes today's conference call.

A replay of this call will be available after 1:00 Eastern Standard Time today through midnight on February 26, 2015. The access number is (402) 220-0116. 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.

This does conclude today's program. Thank you for your participation. You may disconnect.