Greenbrier Companies FY 3Q16 Earnings Call Notes

The Greenbrier Companies’ (GBX) CEO Bill Furman on Q3 2016 Results

Coal traffic has been driver of decline in demand, but expect to see long term strength in intermodal

“Well, I don’t think that prior cycles, it’s a great question, prior cycles are particularly a good indicator. We look at things like replacement demand of the aging fleet and demographics among car types. Because as we said before many times, a railcar is not a railcar, is not a railcar. So it’s very specific to individual fleet components. The additional factor that you did not mention and you mentioned two major drivers, but the railroads themselves have invested heavily in infrastructure, and coal traffic has been one of the big drivers of decline in the loadings. So loadings overall are down but there are some selected markets such as chemicals and others that have had positive loadings. We continue to believe that there will be strength in longer term in intermodal and we expect to get orders in that area. We also have had a fairly strong automotive and boxcar demand.”

The are a lot of drilled but unfracked wells

“The last thing I would say about the market for sand cars is that it will be the first market that would recover if oil prices in general recover because of the large inventory of drilled but unfracced wells that need more and more sand.”

The Brazil market is rebounding

“oddly enough, that market is rebounding. Despite some of the things you read about Brazil, it’s a very wealthy country and we are in it in a fairly economical basis and the fleet replacement activity down there is fairly sizeable.”

A 3% yield is a good dividend yield in this environment

“deployment of capital, we will continue to have very strong discipline. We noted, it’s interesting to Google dividend stocks because as you see interest rates so low and returns so low, more and more capital is seeking higher yields, we think a 3% yield is an attractive yield in today’s market. We believe we can sustain that kind of yield.”

We’re seeing the light at the end of the tunnel

“We think we are about halfway through the cycle of dealing with these things. First there was oil by railcars. We see light at the end of the tunnel there. I hope it’s not a train. We also more bullish on oil prices even though oil is down to-date. Spending some time in Saudi Arabia helps get a global perspective and we continue to see evidence that supply and demand will be equalizing in this area and the policy of OPEC is certainly subject to change.”

Steel prices have increased

“We are seeing, in North America, a little strengthening in steel pricing. But so far it hasn’t been a material factor either way. You are right, in general it has been a tailwind for manufacturing through to lower input costs. In this kind of a market for our segment, we don’t see us squeezing out that could occur though. And we think it’s more the reflection of capacity adjustments that steel companies have made given there is somewhat successful effort at protecting themselves from Chinese steel dumping.”

Lorie Tekorius

There is an excess of sand cars

” with the increase in velocity on the road and the decline in the oil prices, there are excess sand cars. So we are chatting with those customers and the timing of when those cars, we built this, is a little bit uncertain at this point in time. But they are still absolutely orders for railcars and we have not have customers back away from them.”