Greenbrier Companies, Inc. (The) (GBX)

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The Greenbrier Companies, Inc. (GBX)

F1Q10 Earnings Call

January 8, 2010 11:00 am ET

Executives

Mark J. Rittenbaum – Chief Financial Officer, Executive Vice President & Treasurer

William A. Furman – President, Chief Executive Director & Officer

Analysts

Arthur W. Hatfield – Morgan Keenan & Company, Inc.

Steve Barger – Keybanc Capital Markets

John Parker – Jefferies

Paul Bodnar – Longbow Research

J. B. Groh – D. A. Davidson & Co.

Ben Brogadir – Imperial Capital

Presentation

Operator

Mark J. Rittenbaum

Good morning and welcome to our fiscal 2010 first quarter conference call. On today’s call we will discuss our results and make a few remarks about the quarter that ended November 30th and then we will provide an outlook for 2010 and beyond and then after that we will open it up for your questions.

As always, as a reminder, matters discussed on this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout the discussion today we will describe some of the important factors that could cause our actual results in 2010 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

Today we reported our first quarter results and you may have noticed a change in the presentation on our P&L and this is a change only in nomenclature and at the bottom line loss which was formerly referred to as net earnings or net loss is now referred to as net earnings or net loss attributable to controlling interest. This is in accordance with GAAP not to confuse readers of financial statements. I do want to remind this is a change in nomenclature only and not in how earnings or EPS are calculated.


With that said our net loss attributable to controlling interest for the quarter was $3.2 million or $0.19 per share on revenues of $172 million. Net loss for the quarter included non-cash charges of $2.1 million pre-tax, $1.2 million after tax or $0.07 per diluted share for warrant amortization expense and amortization of convertible debt discount. Net loss for the prior comparable quarter included a non-cash charge of $0.9 million pre-tax, $0.6 million net of tax or $0.03 per diluted share for amortization of convertible debt.

If you are comparing this to our numbers previously reported for the prior year’s first quarter also in accordance with GAAP we restated that quarter for this new accounting pronouncement related to amortization of convertible debt.

Both of these amortization amounts are included in interest expense on our P&L and for the year as a whole these charges will run about $8.6 million pre-tax and at currently anticipated tax rates this equates to about $5.2 million after tax or roughly about $0.30 per share.

We continue to manage the company for cash flow and liquidity and our cash balances of $65 million and additional committed borrowing availability of $107 million are substantially unchanged from last quarter. In addition during the current quarter we will file our 2009 tax return for the year that ended and as a result of recent changes in the tax laws we will be able to carry those losses back a total of five years and this will allow us to realize a $14 million tax refund within the next 90 days of the filing.

We do continue to believe firmly we have the adequate liquidity to weather the downturn with the favorable debt covenants we were able to negotiate in the spring of last year and no significant debt maturing until 2012 and much of our debt maturing in 2015.

Now let me address some highlights for the quarter that supplements what you found in our earnings release. To begin, overall gross margin of 12.6% for the quarter compared to 7% in the prior comparable quarter with the improvement primarily driven by our manufacturing segment. In our refurbishment parts segment revenue declines were primarily due to lower sales volumes across all product and service types and a further decline in the price of scrap metal, both due to the current economic environment.

Having said that we are seeing and I am sure many of you have noticed the scrap metal prices have been rising in the recent past. Gross margin for the refurbishment and parts segment was 10.4% of revenues compared to 9.8% of revenues in the prior comparable quarter and the increase is primarily the result of cost reduction efforts.

Our manufacturing revenues continue to be adversely affected by the weak business environment and depressed demand. Current quarter deliveries of 350 units were down from 800 units in the prior comparable quarter but having said this we are pleased with the improvements in operating efficiencies in this segment. Our manufacturing gross margin for the quarter was 7% of revenues compared to negative 4.1% in the prior comparable quarter.

The gross margin increase was primarily the result of a more favorable product mix and improved production efficiencies partially offset by less efficient absorption of overhead at lower operating levels. In addition, the first quarter of last year we had accrued loss reserves of $0.5 million for contingencies for railcars in our backlog that we anticipated a loss on production. We are operating at stable production levels now and I am sure that we will be speaking to this as a result of our GE contract modification and we are really pleased with the performance of our GIMSA operating unit which was our principle unit for building new railcars in North America.

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