Greenbrier Companies FY 1Q16 Earnings Call Notes

Not going to overreact to what we see as mild hysteria

“The industry is going through a period of adjustment and industry forecasts have been revised reflecting the rail car market is expected to approach more normalized levels. I think it’s very important in historic terms to look at the drivers of this, and it’s also important not to overreact to it. We do not intend to overreact to what I personally see as a form of mild hysteria.”

This is a step down to a normal environment

“we don’t see, as a matter of fact, the softness in order intake, as a cliff event in anyway, but rather a step down to a more normalized environment. We see a normalized environment in our industry in the 60,000 car replacement range dipping to 50 in terms of economic adjustments if things were to get worse”

Decline in tank cars is yesterday’s news

” tank cars for crude transportation make up less than a 11% of our current backlog, and yet people seem to connect our company with the energy phenomenon. And yet that is yesterday’s news. In fact, it’s news from two years ago, as opposed to a profile of what we are doing with our business today.”

Still demand for other car types

More importantly, we’re still seeing healthy demand for other car types, automotive cars. These are for us profitable cars, because we’ve invested over a five-year period and improving the efficiency of these cars and demand in replacement cycle in automobiles is still strong. Boxcars, we have been awarded recent orders in boxcars and we’re running two lines of those, and we have a very high market share.

Boxcars need to be replaced

And boxcars remain the workhorse of the North American fleet. They’re older portion of the fleet, and not very many have built – been built over the last several years. In fact, the energy phenomenon in specialized tank cars and other things have driven some cars that should have been replaced long ago to the sidelines and those cars will be replaced.

Covered hoppers for plastic pallets needed for demand from chemical companies that have invested

Larger cube covered hoppers for plastic pallets, also we expect with the building of chemical companies in the United States and plastic companies that have been invested in U.S. infrastructure, coupled with low gas demand will continue to provide, or low gas prices rather will continue to provide demand for that type of car. We are not seeing any order cancellations. We don’t expect to have order cancellations.”

The Saudis can’t keep doing this for long

“By 2018, most of the analysts who are following energy expect a much different energy picture than we see today. And indeed, if there are vantage points in Saudi Arabia, we see that there is a limited amount of time that Saudi’s themselves and others in OPEC can handle these low oil prices. It’s very effective what they’re doing today. They’re succeeding in their goals, but their break-even pricing is much higher than many frack producers in terms of their budgets, their annual budgets. They’ve got very, very low cost oil. So they can afford to do this now. But on longer term they can’t afford to do it, so they’re facing the – they’re facing this in a few years.”