The Greenbrier Companies FY 1Q17 Earnings Call Notes

The Greenbrier Companies’ (GBX) CEO Bill Furman on Q1 2017 Results

Economic forecasts are becoming more optimistic

“We have gone through an interesting period following the U.S. election and running up to the U.S. election. Sometimes it’s hard to adapt, to adjust. Our Board is very focused on adapting, to adjusting and accepting the new order of things. Even today, as I read analyst reports about Greenbrier and about the market in general, I wonder if we are reading the same material. After the U.S. election, economic forecasts are becoming much more optimistic. We are now seeing data related to the broader economy, the construction starts, automotive sales, consumer confidence, manufacturing activity, for example, a typically precedes stronger railcar loadings.”

Railcar gluts can change rapidly

“There is talk about railcar glut. This so-called glut is driven solely by fundamentals on traffic, coal and velocity. All of those things change and they can change very rapidly. Order momentum in the industry, I continue to expect to pickup and not returning to the robust periods of during the oil boom, but all of these things reflect the guidance that Lorie has indicated and our guidance for fiscal 2017 is reaffirmed.”

Proud to be an American company

“Finally, I will just say on an interesting note, one that we discussed at our board meeting, we are very proud to be a U.S. company. We have not only headquarters on America, but with global manufacturing operations based in America and almost half of our workforce in American workers. If the policy is to create jobs in America, we are certainly up to that task and what we want to see is a clear landscape for doing that. We hope to support the public policy that will be coming down the road and follow the leadership of the administration.”

There is a lot more activity since the election

“We have a strong pipeline. I think since the election, there is a lot more activity in positioning by major customers who might have been on the sidelines. Other analysts have observed that, the ones that put out the weekly reports. So yes, I think that, that is something that is happening, because if you are a valued player and you are looking for the best price, you don’t want to wait till the market turns. This market typically turns pretty rapidly as you have seen. And the building blocks are all in place for it to turn with economic recovery in America, especially even if there is major infrastructure spend, a major tax bill that delivers some of the promises and the other stimulus that’s going to occur with deregulation.”

It’s not politics, it’s economics

“It isn’t politics at all. It’s economics. And it is the result of the probable policies that are likely to be adopted that will be stimulated at a time when we have a fairly low unemployment rate. So, all you got to do is look at the economic forecast and the shift. The demand curve has shifted and it’s going – it’s expecting everyone’s mental view of how to protect their own supply chain. Just now I answered that question, but it’s not politics, its policy and its economics.”

The auto fleet is still 11 years old in the US

” the auto fleet in America and North America is still 11 years old. So we think that auto is often, people pronounce auto as not going to grow. It just hit the big peak and there is still a lot of pent-up demand for automobiles and new technology especially in that segment.”

The administration knows there are jobs that are supported by trade with Mexico

“On the broader picture, we are aligned with similarly situated manufacturers and other multinational businesses to protect key provisions of NAFTA. And I would just say that this new administration, these people are smart. They are not going to hurt jobs in America. There is a lot of jobs in America that are supported by international trade with Mexico. So I think there is a big difference between locating a new plant in Mexico and sensibly crafting tax policy or other policy that supports U.S. jobs that have assembly operations in Mexico. There is lots of manufacturers, lots of supply chain organizations, lots of jobs, lots of jobs, tons of jobs, particularly in steel, other components that go into railcars that are supported by operations in Mexico. So it’s quite complex. I think you have to have some confidence that this administration is going to sort through it and in the details will provide adequate effort to not make the problem worse.”

One of the major issues in America will be the labor pool. Where will the labor come from?

“One of the major issues in America will be the labor pool. If we create more jobs in America where will the labor come from, because many factories in America today are having trouble filling slots for workers. So I think part of this is just going to have to evolve. But we are prepared – preparing for this. We are discussing robustly. And if the policy is to bring jobs back to America with our network of factories and shops and land in the United States, we do certainly – we can certainly do that. We don’t really predict at this point it will be necessary. About 50%, for example, of value that goes into the car built in Mexico comes from U.S. labor, U.S. material and those jobs need to be protected too. So you don’t want to shoot a hole in the bottom of the boat as you are trying to get the boat sail a little bit better. And I am sure this administration will not do that. Certainly, Congress will not do it.”

Some of the things that are being talked about could turn the whole supply chain around

“We are watching tax legislation in Congress as most of our manufacturing peers, those international companies, I mean there is tons and tons of companies are affected by this kind of policy. Nike, for example, right here in Oregon is greatly affected by policy on trade, not necessarily in Mexico, although surprisingly many people don’t realize that a lot of shoes are made in Mexico. Not necessarily for Nike, but my point is that there are many, many companies that have complex supply chains and we are all very interested in supporting U.S. policy. But first, we have to understand what the rules are going to be in the U.S. policy. Some of the things being talked about are pretty exciting in terms of the combination of tax and incentives for exports. So you could just turn the whole supply chain around and it could be a big win for some companies that have experienced in international trade. Consider, for example, some of the policies are being considered right now on taxation. Because if we really do want to favor exports and we want those jobs in the United States and we make it very attractive to build export products in the United States and if you got markets elsewhere, what kind of strategy does that suggest, suggest a strategy in building components and parts and turning supply chain around, moving it the other way, very interesting.”

We wont know what our tax rate would be until we know what tax code is adopted

“Typically, it depends which tax code is adopted. There is 25 variations right now being debated in the Senate.”