Enterprising Investor
9 years ago
Riding the Railcars (5/30/15)
Companies that manufacture freight railroad cars have profited handsomely off of the surge in U.S. oil production over the past five years.
By Avi Salzman
Companies that manufacture freight railroad cars have profited handsomely off of the surge in U.S. oil production over the past five years. Oil drillers used railroads to ship the commodity throughout the country, and received deliveries of fracking sand by rail, too. Industry leader Trinity Industries (TRN) shipped 30,255 railcars last year, up from 4,750 in 2010.
But investors now fear that the oil-driven boom is over. Railcar orders fell 57% between the fourth quarter to the first, and industry backlog—the number of railcars that have been ordered but not yet delivered—was down 3%, after hitting record levels in the fourth quarter.
The fear is not unwarranted. The railcar business is highly cyclical, and periods of rapid activity are often followed by much slower production. Once the order backlog declines, the stocks tend to follow closely behind.
But the counterargument—that the railcar boom still has a ways to go—is persuasive. The stocks of companies that make railcars are now trading at very attractive valuations, and haven’t had such clear earnings visibility in many years. Trinity trades at 7 times forward earnings; Greenbrier (GBX) trades at 9.5 times; and American Railcar Industries (ARII) at 9.9 times.
At current production rates, which are the highest since 1999, the current backlog for the entire industry should last for seven quarters, according to Susquehanna Financial analyst Bascome Majors. Trinity’s railcar backlog at the end of last year was worth $7.2 billion, nearly equal to the company’s entire enterprise value.
Several catalysts could sustain the trends, and defy analyst expectations for slowing earnings growth.
Following a series of oil-car explosions, the U.S. and Canada have released new standards for railcars carrying highly flammable material. The changes could affect almost 155,000 railcars. Majors says that “only a fraction of those are likely to be replaced prematurely.”
But the Street may be underestimating the opportunity from tank car replacements and retrofits. Ryan Thibodeaux, president and portfolio manager at Goodwood Capital Management, says that the dropoff in new tank car orders in the first quarter had a lot to do with companies taking a wait-and-see approach before the regulations were announced. He expects much more robust orders in the second half of the year, and sustainable demand for several more years. In just the next three years, railcar owners and lessors could be forced to replace or retrofit as many as 80,000 cars, with full replacements costing about $150,000 each, he argues. He sees a revenue opportunity worth as much as $8 billion to $10 billion.
The Street has also underestimated the benefits to rail companies from a boom in chemical production, which has expanded rapidly in the past few years as companies take advantage of cheap natural gas, Thibodeaux says. “All of the new chemical and plastics capacity on the Gulf Coast will add production that will have to be shipped,” he says. “The industry backlog will remain elevated longer than analysts think.”
Goodwood owns shares in both Trinity and Greenbrier. While Trinity is cheaper, the company lost a False Claims Act lawsuit over its highway guardrails and could be liable for as much as $709 million in civil penalties. It’s also facing a Department of Justice investigation into the guardrails. Eric Marshall, a portfolio manager at Hodges Capital, which owns 2 million shares of Trinity, says his company has studied the suit extensively. “It’s muddied things up for investors, but we don’t think these guys did anything wrong,” he says. “It’s created an opportunity to buy Trinity at a multiple that’s well below its historical norm.”
For investors who want better guardrails for their investment, Greenbrier also trades below its historical range and could benefit from similar trends.
http://online.barrons.com/articles/riding-the-railcars-1432948441
Enterprising Investor
10 years ago
U.S. Tank Car Rule To Require Electronic Train Brakes (5/01/15)
U.S. working closely with Canada on rail rule
U.S. transportation regulators Friday will issue tough new rules for railroads hauling crude oil and ethanol that will require trains be equipped with expensive new brake systems, according to a person familiar with the rules.
The regulations will also require that sturdier tank cars be built for hauling oil, ethanol and other flammable liquids and prescribes upgrades for an estimated 154,500 tank cars already carrying flammables.
The person familiar with the new tank car rules said that trains carrying large volumes of crude oil will be restricted to 30 mile an hour speeds if they don’t have new electronic brakes installed by 2021. Other flammable liquids, including ethanol in high volumes would be speed-restricted after 2023.
The rules, which will be unveiled Friday in a joint announcement by U.S. and Canadian regulators, were tougher than expected. The electronically controlled pneumatic brakes deploy faster than the air brakes now used on freight trains.
Freight railroads maintain that installing them on existing railcars and locomotives would be prohibitively expensive and take years of work fully implement. The cost of installing ECP brakes on an existing railcar is estimated at $8,000 to $10,000, according to rail industry consultants. It wasn’t immediately clear whether Canadian regulators will also require electronic brakes.
The decadelong phase-in requirement for upgrading tank cars already in service is double the time originally suggested by U.S. transportation regulators for completing retrofits. Transportation safety advocates and railcar builder Greenbrier Cos. have said that 10 years is too long and have urged that older cars be upgraded or removed from service sooner.
Several fiery crashes of crude-oil trains, including four this year alone, have ratcheted up pressure on government officials to reduce the risks posed by dozens of crude-oil trains a day traveling through metropolitan areas on their way to refineries.
http://www.wsj.com/articles/u-s-tank-car-rule-to-require-electronic-train-brakes-1430487467?mod=rss_US_News
56Chevy
10 years ago
FORM 10-K
American Railcar Industries, Inc.
[....]
BACKLOG
We define backlog as the number and sales value of railcars that our customers have committed in writing to purchase or lease from us that have not been shipped. As of December 31, 2014, our total backlog was 11,732 railcars, of which 8,888 railcars with an estimated value of $889.1 million were orders for direct sale and 2,844 railcars with an estimated market value of $334.1 million were orders for railcars that will be subject to lease. Approximately 69.4% of the railcars in our backlog are expected to be delivered during 2015, of which 49.4% are for direct sale and 20.0% are for lease. The remaining 30.6% of the railcars in our backlog are scheduled to be delivered in 2016 and beyond. As of December 31, 2013, our total backlog was 8,560 railcars, of which 6,230 railcars with an estimated value of $713.4 million were orders for direct sale and 2,330 railcars with an estimated market value of $326.7 million were orders for railcars that will be subject to lease.
Railcars for Sale. As of December 31, 2014, approximately 75.8% of the total number of railcars in our backlog were railcars for direct sale. Estimated market value of railcars for direct sale reflects the total revenues expected as if such backlog were converted to actual revenues at the end of the particular period. Railcars for direct sale to our affiliate, ARL, accounted for 17.6% of the total number of railcars in our backlog as of December 31, 2014.
Railcars for Lease. As of December 31, 2014, approximately 24.2% of the total number of railcars in our backlog were for lease, subject to firm orders. Estimated backlog value of railcars that will be subject to lease reflects the estimated market value of each railcar as if it had been sold to a third party. Actual revenues for railcars subject to lease are recognized per the terms of the lease and are not based on the estimated backlog value.
[....]
http://www.sec.gov/Archives/edgar/data/1344596/000134459615000006/arii-12312014x10k.htm
*Mr. Carl Icahn exerts significant influence over us and his interests may conflict with the interests of our other stockholders.
Mr. Carl Icahn controls approximately 56% of the voting power of our common stock, through IELP, and is able to control or exert substantial influence over us, including the election of our directors and controlling most matters requiring board or stockholder approval, including business strategies, mergers, business combinations, acquisitions or dispositions of significant assets, issuances of common stock, incurrence of debt or other financing and the payment of dividends. The existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire a majority of our outstanding common stock, which could adversely affect the market price of our stock.
Mr. Carl Icahn owns, controls and has an interest in a wide array of companies, some of which, such as ARL, AEP and ACF as described above, may compete directly or indirectly with us. As a result, his interests may not always be consistent with our interests or the interests of our other stockholders. For example, ARL competes directly with some of our customers and with us in the railcar leasing business. ACF has also previously manufactured railcars for us and under a purchasing and engineering services agreement and license is manufacturing and selling tank railcars with engineering, purchasing and design support from us. Mr. Carl Icahn and entities controlled by him may also pursue acquisitions or business opportunities that may be complementary to our business. Our articles of incorporation allow Mr. Carl Icahn, entities controlled by him, and any director, officer, member, partner, stockholder or employee of Mr. Carl Icahn or entities controlled by him, to take advantage of such corporate opportunities without first presenting such opportunities to us, unless such opportunities are expressly offered to any such party solely in, and as a direct result of, his or her capacity as our director, officer or employee. As a result, corporate opportunities that may benefit us may not be available to us in a timely manner, or at all. To the extent that conflicts of interest may arise among us, Mr. Carl Icahn and his affiliates, those conflicts may be resolved in a manner adverse to us or you.
**As of February 20, 2015, as reported on the NASDAQ Global Select Market, there were 21,352,297 shares of common stock, par value $0.01 per share, of the registrant outstanding.
*** Net earnings per common share—basic and diluted $4.66
Marker:
American Railcar Ind (ARII)
$49.19 0.0 (0.00%)
Volume: 0
OptionMonster
17 years ago
American Railcar Industries, Inc. Reports 28% Increase in Fourth Quarter Earnings and Record Earnings for Calendar Year 2007
American Railcar Industries, Inc. (“ARI” or the “Company”) [NASDAQ: ARII] today reported its fourth quarter and full year 2007 financial results.
“ARI recorded its best financial performance ever in 2007. We are very pleased to have achieved strong results for both the quarter and the year in spite of the reduced demand and increased competition for hopper railcars,” said James J. Unger, President and CEO of ARI. “For the year, we achieved record revenues and earnings, and have a strong backlog of 11,929 railcars as of December 31, 2007. In addition, construction has been completed on our new flexible railcar manufacturing plant at our Marmaduke, Arkansas complex, and we began producing railcars at that facility in the fourth quarter of 2007.”
For the three months ended December 31, 2007, revenues were $161.9 million and the net earnings attributable to common shareholders increased 28.3% to $7.9 million or $0.37 per diluted share. In comparison, for the three months ended December 31, 2006, the Company had revenues of $165.3 million and net earnings attributable to common shareholders of $6.1 million or $0.29 per diluted share. During the three months ended December 31, 2007, the Company shipped 1,590 railcars compared to 1,687 railcars in the same period of 2006.
Revenues and railcar shipments decreased in the fourth quarter of 2007 compared to the same period in 2006 primarily due to a reduction of hopper railcar shipments, reflecting less demand and increased competition for some of our hopper railcar products. The revenue decline on hopper railcars was partially offset by an increase in tank railcar shipments, which was due to increased tank railcar capacity.
EBITDA was $16.9 million in the fourth quarter of 2007, a 37.0% increase compared to EBITDA of $12.3 million in the fourth quarter of 2006. The increases in EBITDA and net earnings attributable to common shareholders resulted primarily from an increase in gross profit driven by railcar mix, including significantly more tank railcars, and improved manufacturing efficiencies. A reconciliation of the Company’s quarterly and year to date net earnings to EBITDA (a non-GAAP financial measure) is set forth in the supplemental disclosure attached to this press release.
For the year ended December 31, 2007, revenues were $698.1 million and the net earnings attributable to common shareholders increased 7.6% to $37.3 million or $1.74 per diluted share. In comparison, for the year ended December 31, 2006, the Company had revenues of $646.1 million and net earnings attributable to common shareholders of $34.6 million or $1.67 per diluted share, including a pre-tax benefit of $14.3 million related to insurance recoveries. The $14.3 million included $9.9 million of business interruption insurance compensation for lost profits while the tank railcar facility was shutdown due to the damage from a tornado, and a $4.3 million gain, which was related to the involuntary conversion of assets that were destroyed by the tornado. The gain on the involuntary conversion of assets resulted in a $0.13 per diluted share increase to 2006 diluted earnings per share. During the year ended December 31, 2007, we shipped 7,055 railcars compared to 6,947 railcars in the same period of 2006.
Revenues and railcar shipments increased in the year ended December 31, 2007 compared to the same period in 2006, primarily due to an increase in tank railcar shipments, resulting from increased tank railcar capacity in 2007 and the recovery from the tornado related shutdown in 2006. This was partially offset by a reduction of hopper railcar shipments, driven by less demand and increased competition for some of our hopper railcar products.
EBITDA was $76.7 million in the year ended December 31, 2007, a 15% increase compared to EBITDA of $66.5 million in the year ended December 31, 2006, which included the effect of our insurance recoveries of $14.3 million. The increases in EBITDA and net earnings attributable to common shareholders in 2007 resulted primarily from increased revenue as described above. In addition, as mentioned above, we experienced improved manufacturing efficiencies at our manufacturing facilities.
ARI will host a webcast and conference call on Thursday, February 21, 2008 at 10:00 am (Eastern Time) to discuss the Company’s fourth quarter and full year 2007 financial results. To participate in the webcast, please log on to ARI’s investor relations page through the ARI website at www.americanrailcar.com. To participate in the conference call, dial 866-831-6267 and use participant code 62300059. Participants are asked to logon to the ARI website or dial in to the conference call approximately 10 to 15 minutes prior to the start time.
An audio replay of the call will also be available on the Company’s website promptly following the earnings call.
OptionMonster
17 years ago
American Railcar Industries, Inc. Announces Fourth Quarter and Annual 2007 Financial Results Conference Call
American Railcar Industries, Inc. (NASDAQ: ARII) (“ARI”) announced today it will host a conference call on February 21, 2008, at 10:00 am (Eastern Time) to report the Company’s fourth quarter and annual 2007 financial results. The Company expects to release its financial results after the close of business on February 20, 2008, and these results will be available on the Investor Relations page at www.americanrailcar.com.
To participate in the conference call, please log on to the Investor Relations page at www.americanrailcar.com or please dial 866-831-6267. The participant pass code is 62300059. Interested parties are asked to logon to our website or dial in to the call approximately 10 to 15 minutes prior to the start time of the call.
An audio replay of the call will be available on the Company’s website promptly following the earnings call.
About American Railcar Industries, Inc.
American Railcar Industries, Inc. is a leading North American manufacturer of covered hopper and tank railcars. ARI also repairs and refurbishes railcars, provides fleet management services and designs and manufactures certain railcar and industrial components used in the production of its railcars as well as railcars and non-railcar industrial products produced by others. ARI provides its railcar customers with integrated solutions through a comprehensive set of high quality products and related services.
American Railcar Industries, Inc.
William P. Benac or Michael Obertop, 636-940-6000
Source: Business Wire (February 6, 2008 - 5:42 PM EST)
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