Ruthie Ackerman, 11.06.08, 9:29 PM ET
The Greenbrier Cos.
Railroads haven’t been buying new railcars due to the economic slowdown, but they’re still repairing old ones. That’s been a blessing for railcar maker Greenbrier, which announced fourth-quarter results on Thursday that beat expectations on robust growth in its refurbishment and parts unit, despite weakness in its manufacturing business.
Greenbrier shares shot up 10.0%, or 80 cents, to $8.82. Its shares have slumped 60.4% since the beginning of the year. In February, Carl Icahn acquired a 9.5% stake in the company because he believed its shares were undervalued. (See “ Icahn Grabs Greenbrier.”) The billionaire investor has said he's interested in a possible merger with St. Louis-based American Railcar Industries (nasdaq: ARII - news - people ).
Greenbrier’s earnings were hurt by weakness in new railcar deliveries, which declined to 1,800 units, down from 2,400 units in the prior year. Oversupply in the railcar market and higher steel prices have manufacturers buckling. (See " Boxcar Blues.”)
“In the near term, the turbulent economy and fragile credit markets continue to put pressure on new railcar demand and we continue to make changes to our new railcar production plans and rates,” Chief Executive William Furman said.
Furthermore, the company said it may not make a profit on certain backlog orders since rising raw material costs have made manufacturing so expensive.(See “ Greenbrier Dinged But Not Derailed.”)
Fourth-quarter net income was $7.4 million, or 45 cents a share, down from $13.2 million, or 82 cents a share, in the prior year, but well above analysts’ consensus forecast of 39 cents a share.
Revenue rose to $362 million, beating analysts’ expectations.
Sales at its refurbishment division, which provides wheel, axle and bearing services, and reconditions and replaces railcar parts, jumped 36.0% to $158.6 million.
The company said its revenue growth was helped by its recent acquisitions of American Allied Railway Equipment and Roller Bearings, which added about $32.0 million. Sales growth was also boosted by higher wheel volumes and scrap prices.
Railcar backlog as of Aug. 31 was 16,200 units, compared to 17,500 units in the year-ago period.
Furman said he’s optimistic about the long-term fundamentals of the railroad industry, although he expects railcar manufacturing will remain difficult in the near-term. “The economy will eventually recover and we believe demand for new freight cars will return to more normalized levels,” he said.
Mark Rittenbaum, Greenbrier's executive vice president and chief financial officer, said, “Our financial focus is on remaining liquid, paying down debt whenever possible, and prudently employing investment capital.”
Rittenbaum said that based on the company’s financial covenants as of Aug. 31, it has roughly $175.0 million in additional borrowing capacity. “As we enter a challenging fiscal 2009, we will have the benefit of a new railcar backlog which includes approximately 3,900 railcars to be produced in 2009, a fully booked marine barge backlog, a full year of results from our American Allied Railway Equipment and Roller Bearings acquisitions, and a lease fleet which is performing well,” he said, all of which is expected to help the company weather the downturn in new railcars in 2009.
Meanwhile, rival American Railcar Industries announced strong third-quarter results on Wednesday, due to an increase in the number of railcars sold. Its backlog also fell, sliding to 5,956 railcars, as of Sept 30.
American Railcar shares shot up 3.0%, or 29 cents, to $10.12 at the close on Thursday.
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