FreightCar America, Inc. Announces Additional Steps in Manufacturing and Operational Realignment
September 10 2020 - 4:20PM
FreightCar America, Inc. (NASDAQ: RAIL) (“FreightCar America” or
the “Company”) today announced additional steps in its
manufacturing and operational realignment as it plans to acquire
its partner’s 50% interest in the joint venture in Castaños, Mexico
and consolidate all of its production there by January. As part of
this decision, the Company has started the process to permanently
close its manufacturing facility in Cherokee, Alabama (“Shoals”).
Highlights:
- Aggressive footprint consolidation will establish a much more
flexible business structure, allowing the Company to realign costs
to the near-term demand environment.
- Company has initiated the process to permanently close the
Shoals manufacturing facility with production to cease by
approximately year-end.
- The state-of-the-art Castaños, Mexico facility is scalable over
time and will be able to accommodate significantly greater volume
when industry conditions improve.
- When completed, the Company expects to save more than $20
million in annual fixed costs, and further lower its production
breakeven to less than 2,000 cars per annum.
- The Company has signed a letter of intent and is engaged in
negotiations to acquire the remaining 50% ownership in the
Castaños, Mexico joint venture, and intends to complete the
transaction later this year.
Shoals Facility Closure
The closure of the Shoals manufacturing facility
will further align costs and manufacturing capacity with the
current realities of depressed railcar demand, which have been
magnified by the ongoing COVID-19 pandemic. Additionally, the
closure of Shoals will accelerate the Company’s goal to achieve
profitability on significantly lower railcar volumes. The Company
will continue to produce railcars at Shoals through approximately
the end of 2020, with the full closure expected by the end of the
first quarter of 2021.
Jim Meyer, President and Chief Executive Officer
of FreightCar America said, “Today we have announced the difficult,
but necessary, decision to exit our Shoals manufacturing facility
by early 2021. As part of our ‘Back-to-Basics’ multi-year plan, we
have taken significant cost out of our business, while making
significant investments in our products, people and
processes. The efforts of our Shoals’ team helped us to
reduce our breakeven production levels by roughly one-third since
the start of the plan. However, the ongoing impact of the
industry downturn has been further intensified by the COVID-19
pandemic and required an additional and significant response to
both protect our franchise and reposition the business for
immediate success post-downturn.”
Castaños, Mexico Joint
Venture
In September 2019, the Company announced the
formation of a 50-50 joint venture with Fabricaciones y Servicios
de México, S.A. de C.V. (“Fasemex”), to manufacture new railcars
and convert existing railcars at a new facility in Castaños,
Mexico. This facility recently started production of its first
order and is working to achieve AAR certification this fall. A
second production line is expected to be operational by year-end
and additional lines will be added as market conditions improve.
Each production line has capacity of approximately 1,000 railcars
per year. The Company is now engaged in negotiations to acquire
Fasemex’s interest in the joint venture under a letter of intent
and expects to complete the acquisition later this year.
Meyer commented, “The Castaños plant is the
newest purpose-built railcar manufacturing facility in Mexico and
we have the ability to increase its scale as market demand
rebounds. It is roughly one-fifth the size of Shoals and will lower
our fixed costs by approximately $20 million per year. The
consolidation will significantly reduce our breakeven production
levels, from 6,000 railcars before our ‘Back-to-Basics’ plan was
started, to under 2,000 railcars per year once the new plant is
fully operational. To date, we have hired a very experienced
workforce at Castaños, have started production on the first line
and are preparing for certification.”
Balance Sheet, Capital Considerations
& Liquidity
- FreightCar America maintains a
strong balance sheet, with cash and cash equivalents including
restricted cash and certificates of deposit of $52.4 million as of
the end of the second fiscal quarter.
- As a result of the footprint
consolidation, the Company expects to incur pre-tax cash charges of
approximately $6.0-to-$8.0 million by the end of the first quarter
of 2021, consisting of employee-related costs and other cash
shutdown costs.
- FreightCar America is negotiating
its exit with the Shoals facility owner and landlord, the
Retirement Systems of Alabama (RSA).
- The Company owns significant and
valuable assets at the Shoals facility, some of which it expects to
sell.
- The Company expects annual fixed
cost savings of approximately $20 million on a go-forward basis
when the plan is complete, consisting of reduced rent, taxes, and
other fixed overhead.
Meyer concluded, “Today’s news is both a sad end
and a new beginning for FreightCar America. We owe our Shoals’ team
a great deal of gratitude and thank them for everything they have
done for the Company. We will provide transition assistance for
them as part of the planned shutdown. As we look forward, we do so
with an eye to become the lowest cost and highest quality producer
in our industry. We will operate from a new position of strength
and our portfolio will not only be more competitive, it will be
broader in scope and capability given our improved cost structure.
We remain committed to completing the work against the 750-to-1,000
delivery goal we set for the second half of 2020. Our
customers have been very consistent on the importance of the
Company as an alternative supplier, and we believe they will be
highly supportive of these decisions as today’s announcement makes
us a much stronger partner moving forward. Lastly, we ended
the second quarter with over $52 million in cash and cash
equivalents and will continue to prioritize our balance sheet,
while we invest prudently in our future through today’s strategic
announcement.”
About FreightCar America
FreightCar America, Inc. is a diversified
manufacturer of railroad freight cars, that also supplies railcar
parts and leases freight cars through its FreightCar America
Leasing Company subsidiaries. FreightCar America designs and builds
high-quality railcars, including open top hopper cars, covered
hopper cars, intermodal and non-intermodal flat cars, mill gondola
cars, coil steel cars, boxcars, coal cars, and also specializes in
the conversion of railcars for repurposed use. It is headquartered
in Chicago, Illinois and has facilities in the following locations:
Cherokee, Alabama; Castaños, Mexico; Johnstown, Pennsylvania; and
Shanghai, People’s Republic of China. More information about
FreightCar America is available on its website at
www.freightcaramerica.com.
Forward-Looking Statements
This press release may contain statements
relating to our expected financial performance and/or future
business prospects, events and plans that are “forward-looking
statements” as defined under the Private Securities Litigation
Reform Act of 1995. Forward-looking statements represent our
estimates and assumptions only as of the date of this press
release. Our actual results may differ materially from the results
described in or anticipated by our forward-looking statements due
to certain risks and uncertainties. These potential risks and
uncertainties include, among other things: risks relating to the
potential financial and operational impacts of the COVID-19
pandemic; risks to satisfactory execution of the Castaños
consolidation plan including unexpected costs, charges or delays in
the execution of the plan, the Shoals facility, including the
facility not meeting internal assumptions or expectations and
unforeseen liabilities from Navistar; the cyclical nature of our
business; adverse economic and market conditions; fluctuating costs
of raw materials, including steel and aluminum, and delays in the
delivery of raw materials; our ability to maintain relationships
with our suppliers of railcar components; our reliance upon a small
number of customers that represent a large percentage of our sales;
the variable purchase patterns of our customers and the timing of
completion, delivery and customer acceptance of orders; the highly
competitive nature of our industry; the risk of lack of acceptance
of our new railcar offerings by our customers; and other
competitive factors. We expressly disclaim any duty to provide
updates to any forward-looking statements made in this press
release, whether as a result of new information, future events or
otherwise.
Investor/Media Contact
Joe Caminiti or Elizabeth SteckelAlpha IR
Group312-445-2870RAIL@alpha-ir.com
FreightCar America (NASDAQ:RAIL)
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