GATX Corporation (GATX)

[Enterprising Investor]

GATX Corporation Reports 2015 Fourth-Quarter and Full-Year Results (1/21/16)

CHICAGO--(BUSINESS WIRE)--Jan. 21, 2016-- GATX Corporation (NYSE:GMT) today reported 2015 fourth quarter net income of $58.2 million or $1.37 per diluted share, compared to net income of $58.5 million or $1.30 per diluted share in the fourth quarter of 2014. Net income for the full-year 2015 was $205.3 million or $4.69 per diluted share, compared to $205.0 million or $4.48 per diluted share in the prior year. The 2015 results include net negative impacts from the exit of Portfolio Management’s marine investments and other items of $3.0 million, or $0.07 per diluted share for the fourth quarter and $29.6 million, or $0.68 per diluted share for the full year. Details related to the exit of Portfolio Management’s marine investments and other items are provided in the attached Supplemental Information.

Full year highlights for 2015 include:

• Fleet utilization remained above 99% for Rail North America (excluding the boxcar fleet) and above 95.5% for GATX Rail Europe (“GRE”).

• GATX’s Lease Price Index (“LPI”) showed a positive 32.2% renewal rate change with an average renewal term of 54 months, which was in line with our expectations.

• GATX Rail North America’s renewal success rate was 81.4%.

• Investment volume was approximately $525 million for Rail North America and approximately $136 million for GRE.

• Historically high Rail North America remarketing income of approximately $67 million resulted from the Company’s strategy to optimize its fleet by capitalizing on very attractive asset values.

• Rail North America’s committed lease revenue grew more than $600 million from the prior year to approximately $4.2 billion.

• In Portfolio Management, our engine leasing joint ventures with Rolls-Royce (“RRPF affiliates”) had a record earnings year.

• GATX acquired $125 million of its own stock during the year.

“GATX achieved excellent financial results in the fourth quarter, resulting in another record earnings year,” said Brian A. Kenney, president and chief executive officer. “In addition to producing outstanding financial results in 2015, our disciplined strategy has positioned GATX well for the long term. Over the last few years, we dramatically extended lease renewal terms at very attractive rates and optimized our fleet by selling select railcars into a robust secondary market. Additionally, we utilized our supply agreement to purchase new railcars at an attractive cost, limiting our spot market orders in a high-cost manufacturing environment.

“Rail North America performed exceptionally well in 2015. Our diverse and balanced fleet limited our exposure to any one particular commodity or car type. As a result, GATX’s LPI experienced a positive 32.2% renewal rate change in 2015 and we ended the year with fleet utilization of 99.1% (excluding the boxcar fleet) - all despite the industry’s growing over-supply of energy-related railcars. This over-supply did impact our fourth quarter LPI, which showed a positive 20.5% renewal rate change and an average renewal term of 43 months, both of which are down from the prior quarter.

“GRE achieved solid operating results and stable utilization ending the year at 95.8%. Throughout 2015, we invested in our European fleet to replace our customers’ older, less efficient fleets with newer, higher capacity railcars.

“Throughout the year, American Steamship Company (“ASC”) dealt with lower demand for iron ore shipments as steel production in the region declined. However, improved weather and higher water levels resulting in more efficient operations, and spot cargos helped to partially offset the impact of reduced iron ore volumes.

“In Portfolio Management, the RRPF affiliates had another year of outstanding financial results. Also, in the second-half of 2015, we announced our plan to exit the majority of our non-core, marine investments within our Portfolio Management segment. This process has progressed well, with most of the planned sales completed by year end and the balance largely expected to be completed by the end of the first quarter 2016. The planned exit of these assets will not affect ASC.

“Against a backdrop of increasing global economic uncertainty and a pronounced slowdown in the U.S. energy markets, GATX will continue to benefit from our fleet actions over the past few years. By extending average lease terms and optimizing our fleet, we reduced the number of leases scheduled for expiration in 2016 relative to the prior few years. For car types serving weak market segments, GATX will focus on maintaining utilization and shortening lease terms. In 2016, we will continue to use our supply agreement to pursue new car placements with our best customers. Our strong balance sheet also offers us flexibility to pursue attractive secondary market acquisition opportunities.

“In 2016, we expect Rail North America segment profit to decrease from 2015’s record levels primarily due to lower expected railcar remarketing activity in a softer market. We anticipate Rail International will achieve segment profit similar to the prior year, as lease rate improvements are offset by higher maintenance and currency impacts. ASC’s segment profit is expected to increase in 2016 due to improved fleet efficiency, although uncertainty in the steel industry will continue to be a factor for this business segment. In Portfolio Management, 2016 segment profit is expected to be in line with 2015 levels as performance at the RRPF affiliates will continue to drive segment results.”

“GATX is positioned to perform well in this difficult environment. We currently expect EPS in 2016 to be in the range of $5.25-$5.45 per diluted share,” concluded Mr. Kenney.

RAIL NORTH AMERICA

Rail North America reported segment profit of $98.8 million in the fourth quarter of 2015, compared to $83.7 million in the fourth quarter of 2014. The increase in quarterly segment profit was primarily attributable to higher lease rates, increased boxcar utilization revenue, and lower net maintenance expenses across the fleet.

Full-year, Rail North America reported segment profit of $379.5 million, compared to $321.0 million in the same period of 2014. Several items contributed to this increase in segment profit, including higher lease rates, a full-year contribution of the boxcar fleet acquired in March 2014, lower net maintenance expenses, and higher remarketing gains.

At December 31, 2015, Rail North America’s wholly owned fleet was approximately 124,500 cars, including more than 18,400 boxcars. The following fleet statistics exclude the boxcar fleet.

Fleet utilization was 99.1% at the end of the fourth quarter, compared to 99.2% at the end of the prior quarter and 99.2% at 2014 year end. During the fourth quarter, the GATX Lease Price Index (“LPI”), a weighted average lease renewal rate for a group of railcars representative of Rail North America's fleet, showed a positive 20.5% renewal rate change. This compares to a positive 25.6% in the prior quarter and a positive 39.2% in the fourth quarter of 2014. The average lease renewal term for all cars included in the LPI during the fourth quarter was 43 months, compared to 60 months in the prior quarter and 67 months in the fourth quarter of 2014. For full-year 2015, the LPI was a positive 32.2% and the average renewal term was 54 months, compared to a positive 38.8% and 66 months in 2014. The LPI and average renewal term impact quarter-over-quarter and year-over-year were negatively impacted by coal cars and high-capacity tank cars serving the energy sector. Asset remarketing income for the year was $67.4 million, and total investment volume was $524.5 million.

Additional fleet statistics, including information on the boxcar fleet, and macroeconomic data related to Rail North America’s business are provided on the last page of this press release.

RAIL INTERNATIONAL

Rail International's segment profit was $13.7 million in the fourth quarter of 2015, compared to $18.9 million in the fourth quarter of 2014. While more railcars were on lease at GRE, the weaker Euro/U.S. Dollar exchange rate negatively affected reported lease revenues.

Rail International reported full-year segment profit of $70.1 million in 2015, compared to $78.7 million in 2014. GRE lease revenue increased throughout 2015, and a more modern fleet driven by recent new car purchases has resulted in lower maintenance activity, offset by the impact of a weaker Euro.

At the end of 2015, GRE's fleet consisted of approximately 22,900 cars and utilization was 95.8%, compared to 95.7% at the end of the third quarter and 95.9% at 2014 year end.

Additional fleet statistics for GATX Rail Europe are provided on the last page of this press release.

AMERICAN STEAMSHIP COMPANY

American Steamship Company (“ASC”) reported a segment profit of $1.7 million in the fourth quarter of 2015 compared to segment profit of $10.2 million in the fourth quarter of 2014. Segment profit for full-year 2015 was $15.1 million, compared to $27.3 million in 2014. ASC operated 13 vessels during the year and carried approximately 26.5 million net tons of cargo, compared to 15 vessels which carried 30.5 million net tons in 2014. The decrease in tonnage and segment profit was driven by reduced iron ore demand.

PORTFOLIO MANAGEMENT

Portfolio Management reported segment profit of $40.9 million in the fourth quarter of 2015 compared to $28.1 million in the fourth quarter of 2014. 2015 fourth quarter results include a net gain of $14.4 million associated with the planned exit of the majority of Portfolio Management’s marine investments. Higher income from the RRPF affiliates also contributed to the increase.

For full-year 2015, Portfolio Management reported segment profit of $49.8 million compared to $68.2 million in 2014. The 2015 full-year results include a net loss of $28.2 million associated with the planned exit of the majority of Portfolio Management’s marine investments.

COMPANY DESCRIPTION

GATX Corporation (NYSE:GMT) strives to be recognized as the finest railcar leasing company in the world by its customers, its shareholders, its employees and the communities where it operates. As the largest global railcar lessor, GATX has been providing quality railcars and services to its customers for more than 117 years. GATX has been headquartered in Chicago, Illinois, since its founding in 1898. For more information, please visit the Company's website at www.gatx.com.

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