Greenbrier Companies, Inc. (The) (GBX)

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The Greenbrier Companies (GBX)

F1Q09 Earnings Call

January 9, 2008 10:30 am ET

Executives

Mark Rittenbaum – Executive Vice President, Chief Financial Officer and Treasurer

Bill Furman – President, Chief Executive Officer

William Glenn – Vice President, Strategic Planning

Analysts

Frank Magdlen - The Robins Group

Wendy Caplan - Wachovia Securities

Todd Maiden - BB&T Capital Markets

Paul Bodner – Longbow Research

J.B. Groh - D.A. Davidson & Co.

Art Hetfield – Morgan Keegan

Analyst for Steve Barger - KeyBanc Capital Markets

Presentation

Operator

Welcome to the Greenbrier Company's first quarter earnings release conference call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Mark Rittenbaum, Executive Vice President, Chief Financial Officer and Treasurer.

Mr. Rittenbaum, you may begin.

Mark Rittenbaum

Good morning and welcome to our first quarter fiscal 2009 conference call. On today's call, we will discuss our results and make a few remarks about the quarter that ended on November 30. We will then provide an outlook for 2009 and beyond. After that we will open it up for questions.

As always, matters discussed in this conference call include forward-looking statements within the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2009 and beyond to differ materially from those expressed in the forward-looking statement made by or on behalf of Greenbrier.

Today we reported a net loss for our first quarter of $3.3 million or $0.20 per diluted share on revenues of $256 million. We also announced we are reducing our dividend from $0.08 per share to $0.04 per share.

Turning back to the quarter the results included a non-cash charge of $1.2 million pre-tax, $0.6 million after tax or $0.04 per share. The background on this is as a normal course of our business we have a policy of hedging our currency exposure over in Europe to lock in our margins on foreign currency sales. We have been doing this since we entered into European operations ten years ago. All of our hedge contracts and all of our hedging is economically effective but during the quarter we determined a small number of our contracts for technical reasons did not meet all of the requirements to be designated for hedge accounting treatment under GAAP. Therefore we are required to mark those specific contracts to market through the income statement and this resulted in a non-cash charge to interest in foreign exchange of $1.2 million.

Effective in January these contracts will meet the requirements for hedge account treatment and at that time we are no longer required to mark these contracts to market through the P&L.

Turning to liquidity our revolving debt balance declined by $40 million since quarter end and we have additional committed borrowing availability of approximately $138 million.

In addition to that our cash balance is $19 million.

We believe we have adequate liquidity to manage through this downturn. As both Bill and I will address in more detail in downturns such as this our focus is on liquidity and cash flow. We are making and will continue to take aggressive measures to pay down debt, remain liquid and rationalize the sizing of our operations and cost structure to reflect the current environment.

I will now turn the call over to our CO, Bill Furman, and then he will turn it back to me and after that we will open it up for some questions.

Bill Furman

Thank you Mark and good morning. On today’s call I am going to make some remarks about the quarter that just ended, Greenbrier’s competitive position, the current industry environment and the steps we are taking to improve our performance and liquidity in this difficult environment. Finally I will provide some qualitative outlook comments for the year ahead.

Turning to our first quarter the financial results were disappointing but our first quarter result, as Mark just summarized, reflect the very difficult economic environment in which we and other companies in America are operating. This is particularly true in new rail car manufacturing, a segment which continues to have a substantial revenue base for Greenbrier.

The less cyclical parts of our business which include refurbishment and parts, marine manufacturing, leasing and services along with our European operations helped dampen the effects of operating in this environment. However, as was reflected in our first quarter results none of our businesses are immune from that environment.

Our refurbishment and parts business was impacted by lower scrap prices and an unfavorable mix in lower volumes of work. Scrap prices have started to rebound which will benefit this unit as the pipeline clears from older materials and surcharges that have somewhat distorted the quarter for that unit. Revenues for this segment still grew 27% over Q1 2008.

Our leasing services business was affected by lower lease rate utilization and lower gains on fleet rail car sales. However, our own lease fleet of 9,000 cars under management services for an additional 37,000 cars provides us with stable earnings and cash flow.

Our manufacturing business was most impacted during the first quarter due to lower production rates, a less favorable product mix and higher cost of materials purchased earlier in the year. Additionally a loss contingency of $.5 million was reported on rail cars currently in backlog as reserves reported in fiscal 2008 were adjusted based on current expectations reflecting lower run rates and the mix just described.

On a more positive note, commodity prices have declined considerably in recent months in turn lowering input costs on new freight car construction. This may lead to some bargain hunting by customers. We do expect our new rail car backlog to benefit from a more favorable product mix and lower input costs for the remainder of the year.

Our new rail car backlog is 15,900 units of which 2,900 are currently scheduled for delivery in fiscal 2009. As is to be expected in this environment all customers are pushing back, seeking concessions and/or cancellations with their suppliers. We are certainly doing this with our suppliers and renegotiating costs on components given the very large swings in commodity prices and the variability and weakness in those prices today. Our customers are doing it with us.

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