2024-01-05 12:18:39 ET
Summary
- The Greenbrier Companies, Inc. Q1 revenues fell short of expectations but had strong earnings on the bottom line.
- Gross margin was strong.
- New orders are robust and there is clear visibility to 2025.
- Sizable profits should be taken on The Greenbrier Companies, Inc. shares while leaving a smaller house position in for future gains and dividends in a long-term account.
We last called for a public trade on The Greenbrier Companies, Inc. ( GBX ) one year ago, with buy points in the $26-$28 range back in early 2023. Today, shares have eclipsed $50. We think you now back out your initial investment, plus, of the profits you have, take 25% of those, and let the rest run as a house position. This is the exact type of strategy we employ on our trading wins at our investing group. It allows you to capture with house money all future gains, dividends, spinoffs, etc., while taking the capital to redeploy to better opportunity for more rapid-return gains like we locked in with GBX.
This is a stock we have traded many times. We much prefer this approach over buy and hold investing. Buy and hold can work in the right stable blue chip names, but our goal is building your bankrolls, and actively managing your holdings is the best way to do this. The stock has spiked today on solid fiscal Q1 earnings and a decent outlook, though GBX stock historically starts to struggle at these levels. Let us discuss.
Greenbrier Companies Fiscal Q1 headline earnings
Here in the just reported fiscal Q1, the top line was actually a bit short of our expectations for revenue. Q1 revenues rose year-over-year by 5.5% from last year to $808 million, below our expectations for $839 million. The top line was also well below consensus expectations, by $41 million.
This caught us a bit by surprise, but was driven largely by a delay in deliveries being pushed out later in the year, as well as lower repair activity. Still, there was a strong book-to-bill again, and we saw an increase in the number of railcars in the lease fleet. New orders remain strong, and the backlog is healthy.
So, why are shares spiking? The outlook is positive, but despite the sizable revenue shortfall, we saw very strong earnings on the bottom line. The adjusted EPS of $0.96 crushed our expectations for $0.70 in earnings and beat the Street consensus by $0.23. Margins have recovered nicely. Lorie Tekorius, CEO and President, stated in the earnings press release :
our new railcar backlog remains robust and is supported by quality products and customer loyalty, making Greenbrier a market leader. Our backlog, combined with programmatic railcar rebuilding activity not included in backlog, provides clear revenue visibility into 2025. In Leasing, the disciplined construction of our leased railcar fleet and increasing lease rates make doubling our high-margin recurring revenue an achievable goal in the years ahead. The pace of progress on our strategic goals is encouraging as we work to enhance Greenbrier's financial performance during periods of strong market demand and stabilize performance at higher levels when demand is less favorable
Gross margin overall was 15% in Q1, up 610 basis points from a year ago. This was a result of strong manufacturing margins and supply chain issues that have been resolved, in conjunction with efficiency plans that were put into place.
Segment performance
Let us talk about segment performance. Gross margin was 11.1% up from 9.3% in the manufacturing segment in the linked quarter, and up from 6.5% a year ago. This is strong. There were also fewer deliveries, but better pricing, however operating margin was up to 8.0%, versus negative margins a year ago. In the maintenance services segment, gross margins rose to 14.6% from 6.9% a year ago, though was down 40 basis points from the linked quarter. Still a stellar result. In the leasing and management services margins were a strong 69.5%, up from 62.6% a year ago, and up from 67.8% in the linked quarter.
Order activity strong
New orders in the quarter totaled 5,100 units valued at $710 million, which is strong. The price per car is also up, helping margins. Deliveries were 5,700 in Q1, and the company grew the lease fleet by another 700 units to 14,100 units. 98% of the fleet is being utilized. The backlog remains strong and is a critical indicator of future cash flow generation and earnings potential. In Q1, new railcar backlog was 29,700 valued at $3.8 billion.
Shareholder friendly
This trade led to some nice gains, and now that we are suggesting those that played it run a house position like we do at our investing group, you need to be aware that this company is shareholder-friendly. Earlier this year, the board also renewed a $100 million share repurchase program, and in the quarter repurchased $1.3 million in shares. The company also pays a dividend , and the Board just declared a quarterly dividend of $0.30 per share, payable on February 15, 2024, to shareholders of record as of January 25, 2024. This is Greenbrier's 39th consecutive quarterly dividend, another reason we like holding a house position.
Forward view
Looking ahead to the next fiscal year, the outlook was strong. Management has clear revenue visibility, and the market likes this. As we look ahead you can expect 22,500-25,000 deliveries, with 1,000 of them in Brazil. Revenue should come in between $3.3 and $3.7 billion. Capex will be down from 2023, at $165 million, while the company plans to sell another $85 million of its equipment. Assuming we see comparable margins through the year that we saw in Q1, we see EPS coming in between $3.40 and $4.20.
With this growth, The Greenbrier Companies, Inc. shares are still reasonably valued at just over 12X FWD earnings, but now execution is paramount. Historically, the stock does struggle a bit at these levels, but it can power higher slowly from here with execution. We think the best course of action is closing the trade and leaving a house position running.
For further details see:
The Greenbrier Companies: Tremendous Turnaround, House Position Time