Greenbrier Companies, Inc. (The) (GBX)

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The Greenbrier Companies (GBX)

F3Q08 Earnings Call

July 8, 2008, 11:00 am ET


William A. Furman – President, Chief Executive Officer

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


J. B. Groh, CFA – D. A. Davidson and Company

Paul Bodnar – Longbow Research

Frank Magdlen – The Robins Group

Wendy Caplan – Wachovia Securities

Jim Laventhol – Laventhol and Company

Joe Radigan – Keybanc Capital Markets

Joseph Ciampi – Southpaw Asset Management

Ryan Keeley – Keeley Asset Management

Mulan Von Redden – Happy Capital

Logan Stevens – Morgan Keenan & Company, Inc.

Todd Maden – BB&T Capital Markets

Christopher Beard – Symphony



Hello, and welcome to The Greenbrier Companies’ third quarter of fiscal year 2008 earnings release conference call. Following today’s presentation we will conduct a question and answer session. Until that time, all lines will be in a listen-only mode. At the request of Greenbrier Companies, this conference is being recorded for instant replay purposes.

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 J. Rittenbaum

Good morning and welcome to our fiscal third quarter conference call. After we review our results and make a few remarks about the quarter that just ended we’ll provide an outlook for 2008 and beyond, and then we’ll open up for your questions.

As always, matters discussed in 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 Greenbrier’s actual results in 2008 and beyond to differ materially from those expressed in the forward-looking statement made by or on behalf of Greenbrier.

Today we reported our third quarter fiscal results. Our GAAP net earnings were $0.49 per share on revenues of $382.1 million compared to net earnings of $0.81 per share on revenues of $386.6 million in the third quarter of 2007.

We remain very liquid as we’re in the process of amending one of our loan agreements and we’ll have $160 million of additional borrowing capacity under the various terms and financial covenants once this amendment is completed.

Our refurbishment and parts, leasing, and services in marine businesses continue to perform well and we anticipate this momentum will sustain. Including our recent acquisitions, these businesses are expected to generate over $770 million in annual revenues on a current run-rate basis, exceeding those generated by new rail car manufacturing in North America and Europe.

The increased contribution from our refurbishment of parts and leasing and services businesses improved overall gross margins by $14 million sequentially over the second quarter of 2008. The strong performance of these business units offset a sequential decline of $4 million in manufacturing margins, which results from the increasingly competitive new rail car environment and rising raw material costs.

Focusing specifically on the refurbishment and parts segments, we have made two acquisitions this year on top of the two we made last year and are extremely pleased with the performance thus far. Revenue from this segment now earned a run-rate which exceeds $600 million per year. In addition, margins continued to expand and reached 21% during the third quarter. This segment has benefitted from higher scrap prices, which provides a natural hedge to rising raw material costs in the new rail car manufacturing. We anticipate growth for this business will continue and believe that margins in the upper teens are sustainable.

The leasing and services segment includes results from our own lease fleet of 9,000 rail cars and managed fleet of 138,000 cars. Lease fleet utilization for the quarter was 96.1% compared to 97% last quarter. The current quarter includes $5 million in gains on equipment sales, flat with the gains realized in Q3 of 2007 and compared to $1.2 million in Q2 of 2008.

As we have previously stated, equipment fails are hard to forecast as they are opportunistic in nature. Recently we have been taking advantage of high scrap steel prices by scrapping some of our older rail cars rather than keeping them in leasing service. The remaining fleet has also benefitted from increases in steel pricing through higher residual values.

When you pull out gains on equipment sales, our margins for this segment were 46.7% of revenues this quarter, similar to the margin for the last two quarters.

Turning to remanufacturing, we booked four additional barge orders during the quarter and our backlog grew to 158 million. Annual revenues for this operation exceed $60 million and, again, we anticipate continued growth in this sector and the outlook is bright. Furthermore, our entire marine backlog allows for pass through of material cost increases to our customers.

New rail car deliveries for the quarter were 2,200 units compared to 3,000 units in the third quarter of 2007. Our backlog as of the quarter end was 17,500 units and we expect to deliver 1,400 of these units in the fourth quarter of this fiscal year based on current production plans.

We made progress during the quarter at our Mexican joint venture, our Greenbrier-GIMSA operations with improved efficiencies and financial results.

Manufacturing margin for the quarter continued to be pressured by rising steel prices and surcharges, lower production rates, and a loss reserve on certain future production and backlog. In the near term, we believe these forces along with an extremely competitive market and softer demand will continue to put manufacturing margins under stress.

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